Glossary

A to D

Accumulation units units/shares where the income arising from your investment is retained within the fund and reflected in the unit/share price

Additional expenses costs paid by the fund for services provided by the custodian, auditor and registrar

AMC (short for annual management charge) - the annual fee that covers the cost of investment management and administration

Authorised fund a unit trust or OEIC that is authorised by the Financial Services Authority for promotion to the general public in the UK

Bear 'bears' are investors with pessimistic outlooks, as opposed to 'bulls'. To be 'bearish' in relation to stockmarkets means you believe the market will fall

Benchmark a measure against which the performance of a fund is compared or sets its objective. Often an index (for example the FTSE 100) is used

Bid price the selling price for units in a unit trust which has 'dual pricing'

Bid/offer spread the difference between the buying (offer) and selling (bid) price of units in a dual priced unit trust. It is normally expressed as a percentage of the offer price and includes an allowance for the inital charge

Bonds investments which pay a fixed rate of interest. Bonds can be issued by governments or companies

Bull you're said to be 'bullish' if you are an optimistic investor and believe that markets are in a period of gains rather losses

Cancellation price for dual priced unit trusts this is the lowest possible valuation of your units on any one day. The actual bid (selling) price is often higher

Capital the sum of money you initially put into your savings or investments

Capital gains tax a tax you may have to pay if you sell units or shares and make a profit

CAT standards (stands for charges, access and terms) - voluntary standards introduced by the Government which can be aplied to ISA products. CAT standards do not guarantee the performance or suitability of a fund

CCP (stands for convertible cumulative preference shares) - a preference share that is convertible into ordinary shares and one which gives the issuer the ability to hold off paying the dividend until a later date (but it accumulates rather than allowing them to skip payment altogether)

CCRP (stands for cumulative convertible redeemable preference shares) - preference shares that can be converted into ordinary shares, that pay a dividend which can be deferred until a later payment date (although it accumulates). The company also has an option to redeem the instrument early

CNV (stands for convertible bond) - able to convert into ordinary shares at a set date or share price

Convertibles fixed interest investment products, such as bonds, that may be converted into company shares at a future date

Corporate bonds fixed interest securities issued by public companies

CPP (stands for convertible participating preference shares) - a preference share that can convert into ordinary shares. Participating means that they have preferential rights over ordinary preference share holders

CRSLS (stands for convertible redeemable secured loan stock) - convertible loan stock (into ordinary shares) that gives the issuer the flexibility of redeeming, but provides the bond holder with security over specific assets in the event of a default

Creation price the highest possible offer (buying) price for your units before the initial charge is added. If there is an initial charge, the offer price will be higher

CULS (stands for convertible unsecured loan stock) - convertible but riskier for the bond holder as there is no security over the firms assets in the event of default

Custodian the custodian is appointed by the trustee to hold a fund's assets. They are responsible for collecting and paying dividends, interest and proceeds arising from fund management transactions

Designated account an arrangement whereby a unitholder (or shareholder) account is held on behalf of another person, for example a parent holding an account for a child

Distributions income paid out from a unit trust or OEIC

Dividends income paid on shares out of company profits. also, distributions made by unit trusts and OEICs that invest mainly in equities

Dual pricing Dual priced funds have an offer price at which you buy and a bid price at which you sell

E to H

EMTN (stands for euro medium term note) - part of a company's financing where they continually offer bonds with maturities of 9 months to +10 years

Ex-dividend (XD) - the period between the accounting date for a fund and the date any income is paid out

FRN (stands for floating rate note) - where the bond coupon (interest) fluctuates, often related to changes in Central Bank interest rates

Financial Services Authority the regulator that registers authorised unit trusts and OEICs. The Financial Services Authority is responsible for the authorisation and supervision of investment firms in the UK.

Fixed interest securities provide regular fixed interest payments. They include gilts and bonds

Gearing (applied to investment trusts) - gearing means borrowing. Investment trusts may borrow money to invest in further shares in the expectation that the returns on the investments will exceed the costs of the borrowing

Gilts fixed interest securities or stock issued by the UK Government. Also known as gilt edged securities

I to L

Income units/shares units/shares where income arising from your investment is distributed to you in the form of interest or dividends

IFA (stands for independent financial adviser) - can advise on any product from the full range of providers

ISA (stands for Individual Savings Account) - a tax free savings scheme that replaced PEPs and TESSAs in April 1999 for an initial ten year period

Initial charge paid when you invest to cover the manager's expenses, such as commission, advertising, administration and dealing costs

Investment trusts similar to unit trusts as a means of collective investment, but with a different structure governed by different regulations. They are public companies (ie. listed on the London Stock Exchange) with fixed share capital, whose value fluctuates with the demand for their shares on the stockmarket. The price of an investment trust does not necessarily equal the value of its underlying assets.

M to P

Manager's report this is produced every six months and provides accounting and other information (such as portfolio and fund manager's commentary) relating to a unit trust fund for the period covered by the report. For investment trusts, these documents are usually called Report & Accounts

NAV (stands for net asset value) - total assets of an investment trust, less all prior charges, often expressed as an amount per share. NAVs can be calculated in various different ways

Non CIP (stands for non cumulative irredeemable preference shares) - the company has no rights to buy back the preference shares, therefore they have infinite life. They are not able to defer preference dividend payments either

Non-investment grade bonds (also called 'junk bonds') - these bonds carry a high risk that the company that issued the bonds may be unable to repay them. They are lower rated bonds on the share index

OEICs (stands for open ended investment companies) - similar to unit trusts but are constituted as corporate entities rather than unit trusts

Offer price the price at which you buy units in a unit trust

Offshore funds funds that are authorised in areas outside the UK but recognised by the FSA for sale in the UK

Portfolio the spread of investments held by an investor, or the assets held wthin a fund

Preference shares similar to bonds as they usually pay a fixed rate income. Paid as a dividend rather than as interest and subject to the company making sufficient profits

Q to T

Redemption yield takes into account likely capital growth or losses assuming you reinvest income in the fund. A more realistic indication of the long term income generation of the fund

Registrar responsible for maintaining the register of unitholders. Registration fees cover staff costs and overheads for the maintenance of the register and payment of income distributions

Repurchase sale of units back to the fund manager. Also known as 'redemption'

Running yield the amount of income the fund is generating at the current time

Sectors a way of dividing investment funds into various categories to keep similar funds together, eg. European funds, North American funds etc

Simplified Prospectus a document that sets out all relevant information about the management and investment policies of a fund

Switch when an investor redeems units/shares in one fund and reinvests the proceeds into another

U to Z

Unit trust an investment product where private individuals pool their contributions with others, which combine to form a large fund. The fund invests in a spread of different stocks and shares to minimise the risk of loss

Valuation point the time of day that unit trusts or OEICs are valued

Venture capital trusts (VCTs) are similar to investment trusts but they invest in companies that are not quoted on the stock exchange. For further explanation, please visit our investment trust queries section

Wrappers ISAs, savings and investment schemes, PEPs and pensions are all 'wrapper products'. They are not investments in their own right but are different ways of holding an investment. Some wrappers can have tax advantages

Yield the amount of income generated by a fund's investments in relation to the price. Equity funds will quote net (after tax and charges). Interest paying funds will quote gross