Investments Jargon Buster

Investments terms – top 20

Accumulation Units/Shares

Any unit or share of a fund that reinvests the income instead of paying it out to investors as an income. This is commonly abbreviated on fund names as ‘acc’. With an accumulation fund, any interest income earned will either be reinvested directly in the fund – resulting in an increased share or unit price – or where the fund is held within an investment ISA, income can be reinvested through the purchase of additional units or shares in the fund.

Bear Market

A market in which fund prices have been falling for a period of time or are expected to fall going forward.

Benchmark

An index or other market measurement that is used by a fund manager as a yardstick to assess the risk and performance of a portfolio. There are many different benchmarks to accommodate different types of investment mix.

Bull Market

A bull market is one in which prices have been rising or are expected to continue rising in the near future (as opposed to a Bear market) .

Capital

The funds used to acquire any type of savings or investment product.

Capital Gains Tax

A tax levied on the gain or profit you make when you sell, give away or otherwise dispose of something that you own, such as shares or property. Investors benefit from a tax-free allowance each year which may reduce an investor’s Capital Gains Tax bill. The annual tax free allowance for an individual investor is £10,900 for the 2013/14 tax year. This limit may change in the future.

Commodity

A tradeable item that can generally be further processed and sold, for example metals, wheat, sugar, coal etc.

Dow Jones Industrial Average

An index compiled daily using New York Stock Exchange closing prices.

Equities

An alternative name for stocks or shares.

FSA (Financial Services Authority)

This is the UK authority responsible for regulating the financial services industry, which includes investment management companies, banks, building societies and insurers. The FSA is responsible for protecting the consumer.

FTSE 100 Index

An index of the 100 largest companies (by market capitalisation) in the UK.

Fixed Term Investments / Structured Products

Investments where the returns are dependent on the performance of an asset (sometimes called the “underlying”) or a stock market index such as the FTSE 100. Fixed term investments / structured products fall into two main categories: Structured Capital at Risk Products (where the investor could lose some or all of the money they invest) and Capital Protected Plans, which aim to repay all of the amount invested at the end of the plan term (once any management fees have been taken into account), regardless of the performance of the “underlying” asset or index.

Hedge Fund

A type of investment portfolio under which the fund manager is authorised to utilise a number of higher-risk investment techniques, including using derivatives, short selling and borrowing funds to generate a higher return. However, not all hedge funds undertake high-risk investment strategies.

Hedge/Hedging

The practice of undertaking one investment activity in order to protect against loss in another. Financial instruments commonly used to 'hedge' against the risk of losses include types of derivatives such as futures, swaps and options.

ISA (Individual Savings Account)

A savings vehicle that allows you to invest in equities, funds, life assurance policies or save in cash without having to pay tax on the returns gained from them. The limits on how much you can save or invest in an ISA have changed. The annual limit is £11,520, of which £5,760 can be invested in a cash ISA with one provider. The remainder can be invested in a stocks and shares ISA with either the same or another provider. Applicants must be resident in the UK for tax purposes.

Index

An index is a measurement tool which tracks the share price movement of a number of companies traded on stock markets around the world. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.

Index Linked

This term is usually used when the value of an investment is driven by the value of a particular index. This could be a particular stock market index or an index of inflation (as used with Index Linked Gilts, for example).

Inflation

An increase in the level of prices of goods and services in the economy. It is typically measured by examining the cost of a basket of goods and services that the average member of the population would purchase over time. Inflation reduces the value of any savings and investments held.

Maturity

End of the life of an investment plan at which point the original capital is repaid.

OEIC

Open Ended Investment Company. These are very similar to unit trusts but are set up and structured as companies rather than trusts, in which investors can buy and sell shares on an ongoing basis.