Leanne Macardle

Leanne Macardle

Editor
Published: 06/12/2018

At a glance

  • This investment glossary includes the definitions and explanations behind lots of different investment terms and phrases.

Investing is a complicated topic that sees a lot of specialised terms thrown around. If you’re unclear of what your adviser is talking about or what your stocks & shares ISA documents say, here’s an overview of commonly used terms and what they mean.

Accounting dates

The dates when accounts of an investment fund are finalised. The level of income from a fund is calculated for distribution to shareholders or for accumulation at that time.

Accumulation shares

Shares where the income from a fund is reinvested back into the fund rather than being distributed to shareholders. This in turn increases the share price.

Annual management charge (AMC)

A fee charged for the day-to-day management of a fund based on a percentage of a fund’s value.

Asset type

Different types of assets that can be invested in. There are four main types: equities, bonds, property and cash. Other asset types include commodities and hedge funds.

Bid/offer spread

The difference between the offer price and the bid price in a unit trust fund.

Bid price

In collective investment schemes, this is the price at which the investment house will buy units from investors on encashment. Also applies to the sale of shares.

Bonds

A loan issued by a company or Government. During the life of the bond, the bondholder usually receives regular interest payments based on the coupon rate (i.e. the yield paid by a fixed-term security) and there may be fluctuations in price. On maturity, the loan is repaid at face value, so a capital gain or loss may result.

Collective investment schemes

A general term for unit trusts, OEICs, investment funds and investment trusts.

Corporate bonds

A bond issued by a corporation to an investor as a means of raising money. A fixed interest 'coupon' is paid to the bondholder.

Derivatives

Investments whose value depends on changes in an underlying asset or security. The contract is based on a number of predictions about time or price in the future, but the stock is not physically held during the period of the contract.

Distribution/distribution shares

Shares where the income generated by a fund can be paid to investors rather than accumulated. This income is known as the distribution.

Dividend

A payment made by companies to their ordinary shareholders, generally based on their level of profits. Dividend payments are not guaranteed. Where shares are held indirectly via investment funds, dividends are paid to investors via the distribution (see above).

Dual pricing

Applies to unit trusts. Where units are sold at the bid price and purchased at the offer price.

Equities

Corporate shares that give ownership interests to holders, including rights to vote and receive share dividends. Different types of equity shares exist giving different rights and obligations.

Fixed-interest securities

A loan issued by a company or Government. During the life of the bond, the bondholder usually receives regular interest payments based on the coupon rate (i.e. the yield paid by a fixed-term security) and there may be fluctuations in price. On maturity, the loan is repaid at face value, so a capital gain or loss may result.

Gilts

A gilt is shorthand for certain fixed-interest securities, such as gilt-edged securities or index-linked securities. These are essentially fixed-interest investments issued by the UK Government.

Hedging

A transaction that involves derivatives, which aims to reduce a particular financial risk, for example currency risk.

Initial charge

A fee charged on the purchase of shares or units in a fund based on the value of the initial investment.

Income units

Units in investment funds that pay out an income to the investor, based on the fund’s distribution.

Investment grade bonds

Bonds issued by a company with a higher credit rating, and which are therefore considered more secure.

Investment trust

An investment trust is a type of collective investment whereby investors buy shares in a company that makes its profits by investing in the shares of other companies, rather than by manufacturing a product to sell. Investment trusts are a form of 'pooled' investment, with many investors owning shares in the same trust. The trust company must be quoted on a Stock Exchange (usually London).

 

OEIC

Short for open-ended investment company. A type of collective investment where investments are pooled with other investors in the fund. The fund manager will use this money to buy investments, such as stocks and shares, in line with the objectives of that fund. The value of units in the fund relates directly to the underlying value of these investments. OEICs are single priced.

 

Offer price

The price at which investors buy units in unit trust or shares.

Securities

Investments, such as bonds, issued by companies, governments or other organisations that offer evidence of debt or equity.

Share

Corporate shares that give ownership interests to holders, including rights to vote and receive share dividends. Different types of equity shares exist giving different rights and obligations.

Single pricing

For OEICs. Units in the fund are purchased and sold at the same price.

Stamp duty reserve tax (SDRT)

A tax on share purchases by individuals or fund managers. Up to 0.5% SDRT is charged on transactions in shares in a fund rather than to the individual investor. SDRT is only payable on funds that invest in UK shares.

Sub-investment grade bonds

These tend to be issued by a company that has a lower credit rating and so a greater possibility of failing to make their repayments (those with the lowest rating may be referred to as junk bonds).

Unit

An equal part of an investment fund. When you invest in funds you buy a certain amount of units, depending on the unit price

Unit trust

A type of collective investment scheme where investors purchase units in the unit trust fund. Each unit is an equal share of the value of the fund. The number of units can fluctuate and funds can be dual priced. See OEIC for more information.

Valuation point

The point in time each day where the unit price of units in a fund is calculated, leading to the overall value of the fund being established.

Volatility

The measure of how an asset's price changes over time. Generally a measure to assess risk. The more volatile a fund is, the higher the investment risk involved. Certain types of fund will be more volatile than others, e.g. emerging markets funds or funds investing in small companies.

Yield

A measure of return from interest or dividend income expressed as a percentage of an asset's price. If a bond is bought at a low price, its yield will be higher.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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