We have identified a number of key terms which may help you better understand the world of investments.
Bond
A financial investment which requires commitment for a minimum term whilst paying interest and the option of an income to the investor with a lump sum returned when the bond matures.
Blue Chip
Refers to shares of more stable and reliable companies which are usually associated with low risk investments.
Capital
The money you initially invest.
Capital Growth
An increase in the value of the original investment, after costs, charges and depreciation.
Closed End Fund
The number of shares of the pooled fund is limited
Diversification
A risk management technique used to spread funds among a number of different investments so to reduce the risk associated with overall fund.
Dividend
A payment made to the investor from the company or investment group in the form of a regular income.
Derivative
A contract between two or more parties which can act as a security to evade risk. They can be used as an underlying asset to counteract the loss in value of an investment should the foreseen situation arise.
Equities
Also referred to as shares; representative to the value of ownership rights in a company.
Funds
Refers to money or assets.
Inflation
An increase in the price of regularly used goods and services reflected by the retail price index (RPI).
Investment Risk
Refers to the deviation from the desired activity of an investment. The more risk you take on, the more opportunity there is for greater returns; however you are also increasing your exposure to the volatility of the market and thus the possibility of loss. In other words risk and reward go hand in hand. The more risk you take the greater the opportunity for growth and loss.
Open Ended Fund
The number of shares of the pooled fund increases or decreases daily according to demand from buyers and sellers.
Open Ended Investment Company (OEIC)
An open ended investment whereby investors pool together their investment with thousands of others, to invest in the world stock market. There is no limit on the number of units for sale; more are created with demand.
Pooled Investment
A collective investment scheme whereby a number of individuals pool together their money to participate in a wider range of investments usually unsuitable for individual investors.
Return
The sum remaining in an investment after taking into account the initial sum and any costs or charges incurred.
Shares
See Equities
Tax Relief
A method used by the government to encourage people to save. Tax relief can be either tax free interest in an ISA (individual savings account) or receiving back the income tax paid on pension contributions.
Tax Wrapper
Refers to the ‘wrap’ around some investments so to shelter them from being taxed in one form or another, most commonly ISA’s and pensions.
Unit Trust
Whereby a number of investors pool their money together to invest collectively, owning a unit or a share of the investment fund.
Volatility
Indicates how open an investment is to market changes that will have a direct influence on its value.