Our investment glossary is designed to help you understand some of the major terms used in the world of investing. Some of these definitions include helpful links to our guides where these are explained in more detail.
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.
Shares where the income from a fund is reinvested back into the fund rather than being distributed to shareholders. This increases the value of your holding.
A term used to describe a fund which tries to outperform a certain benchmark by frequently trading its assets off professional expertise.
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.
Also known as an asset class, it’s a term used to describe where your investments are held. This could be in equities, bonds, property, cash or commodities, to name a few.
The difference between the ask price for an asset, the lowest point at which someone is willing to sell their assets, and the bid price, the highest price a buyer is willing to give for these assets.
A loan issued by a company or Government. During the bond’s tenure, you’ll receive regular interest payments based on the coupon rate. On maturity, the original capital is repaid at face value. However, you can lose money on bonds if they’re traded on a secondary market or if your issuer defaults.
Collective investment schemes
A general term for unit trusts, OEICs, investment funds and investment trusts. To be considered a collective investment scheme, the scheme needs to pool money together from several investors and invest it on their behalf.
Raw materials used as a store of value or in the production of goods. Examples of commodities include oil, metals and gold.
Before taking out a bond with a company or country, an investor would look at its credit rating. This is a score given by an independent agency, like Fitch or Moody’s, to the bond’s issuer. Typically starting at AAA, these ratings give you a brief overview on the issuer’s ability to repay the bond with interest.
An unregulated and decentralised currency which is stored online. Examples of cryptocurrencies include Bitcoin.
Investments which gain or lose value on changes in an underlying asset or security.
Used to describe a share of a unit’s price which is trading at less than its worth.
Income generated from an investment.
Spreading your investments across a range of asset classes. Used to protect your money from volatility. (See volatility).
A payment made by companies to their ordinary shareholders, generally based on their profits. Dividend payments aren’t guaranteed. Shares held indirectly via investment funds pay their dividends to you via distribution (see above).
Used for assets with an ask and bid price. See above for Bid/offer spread.
Earnings per share
A tool used to calculate the expected dividend per share.
Funds which don’t only aim to grow but have a secondary goal to support a particular cause on a “moral” level.
Shares or stocks in a company that give ownership interests to holders, including rights to vote and receive share dividends. Different types of shares exist giving different rights and obligations.
Exchange traded funds (ETF)
An investment designed to track the performance of a particular market segment or theme. They’re traded on a stock exchange and can therefore be bought at a discount or premium.
A currency which isn’t backed by a tangible asset. The pound, for example, is a fiat currency.
An index which comprises the 100 biggest listed companies in the UK by market capitalisation. See market capitalisation.
A Government bond issued by the UK Government.
An investment made with the intention to offset potential losses involved in an alternate investment.
A fee charged on the purchase of shares or units in a fund based on the value of the initial investment.
Units in investment funds that pay out an income based on the fund’s distribution.
Bonds issued by a company with a higher credit rating, and which are therefore considered more secure.
An investment trust is a type of collective investment where you buy shares in a company that earns money by investing its capital elsewhere. Investment trusts differ from OEICs and unit trusts in that they’re close ended and there are only a limited number of these shares. This means you can only invest in an investment trust if there’s a willing seller. Unlike an OEIC, the trust company must be quoted on a Stock Exchange.
Refers to an investment which can be sold quickly without its price becoming too volatile.
A method to determine the size of a listed company. It is usually calculated by multiplying the price of a single share in the company by the total number of outstanding shares.
Net asset value
A fund’s total assets minus its liabilities. It is usually expressed as a per share/unit figure, which means you can use it to determine if the fund is trading at a premium or discount. See premium and discount.
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 shares in the fund relates directly to the underlying value of these investments. OEICs differ from unit trusts in that they’re structured as a company. You’ll therefore buy shares in an OEIC and units in a unit trust.
A fund which attempts to match a certain benchmark and doesn’t necessarily require constant work from a fund manager.
Pound cost averaging
Instead of buying a share with a one-off lump sum you could drip feed this money into the share over time. This means you’ll buy it at various price fluctuations and therefore at an average for the period. This strategy is to safeguard your investment from falling sharply off a one-off lump sum deposit.
Used to describe a share or unit’s price which is trading at more than its worth.
Price to earnings ratio
A strategy used to determine the worth of a stock. It’s calculated by dividing the latest stock price by the company’s earnings per share. After accounting for the frequency at which these dividends are paid you’ll get a basic snapshot of how long you’ll wait until you recoup the value of a share through dividends.
A with profits bond is an investment where your money is pooled together by a fund and invested in a variety of asset classes. You’re then paid a “bonus” at the end of the year depending on how the fund performs. This differs from other investments, like unit trusts, in that your bonus is “smoothed”. Therefore, when the fund outperforms its objectives it typically stores this money away instead of paying it out in bonuses. Then, in periods of economic downturn, it can use some of these reserves to bolster its bonuses. This means your bonuses aren’t always guaranteed.
Equities or stocks that give ownership interests to holders, including rights to vote and receive share dividends. Different types of shares exist giving different rights and obligations.
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. SDRT is only payable on funds that invest in UK shares.
Stocks and shares ISA
A stocks and shares ISA is also called an investment ISA, and any returns are not liable for Capital Gains Tax. An investment ISA comes with greater risk as you could lose your initial investment and returns are not guaranteed.
A place where shares are bought and sold. In the UK the official stock exchange is the London Stock Exchange.
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).
A type of collective investment scheme where you purchase units in a fund which holds a set of underlying assets. Each unit is an equal share of the value of the fund. The number of units can fluctuate and funds can be dual priced.
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.
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 funds will be more volatile than others. For example, emerging markets funds or funds investing in small companies are typically more volatile than others.
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.