Investment glossary

A

Annual Management Charge (AMC)

The annual fee charged by the investment managers to the investors to cover the cost of running the fund.

C

Capital growth

This is an increase in value of any investment, not including any income paid out. Funds targeting capital growth aim to select investments that will increase in value over time.

Cash

Cash can include money held as cash at a bank or invested in a range of money market instruments and other bonds which mature within a year. These money market instruments are generally seen as safe and very short term investments.

Some pooled funds keep a proportion of your money in cash, adding flexibility to the asset mix of the fund and making the fund more stable. The proportion of the investment in cash is usually quite low as the growth potential is low

Collective investment

This is a fund used for collective investment by investors, where their money is invested on a pooled basis by an investment manager in return for a fee. This enables customers to invest in a wider range of investments than might be possible if they were investing as an individual. All customers will share any gains or losses of the fund with the other investors.

Corporate bonds

Corporate Bonds, also known as fixed interest securities, are essentially loans to a company. They are the means by which companies borrow money directly from the public. The company pays regular interest on the loan and then pays it all back at a set date in the future. The value of fixed interest securities does go up and down. It tends to go up and down less than the value of shares, but the potential returns are often lower.

Customers can invest in bonds directly through a stockbroker or trader, or can invest in a pooled fund allowing a fund manager to buy bonds issued by many more companies than individuals would otherwise be able to invest in.

D

Diversify

This is a process of investing across a range of investments. The aim is to smooth out the ups and downs of investment growth, because not all investments may perform well at the same time. If one investment performs poorly, better performance from other investments helps to reduce the risk of loss.

F

FTSE

FTSE stands for the Financial Times Stock Exchange. The FTSE indexes are owned by FTSE Russell, part of the London Stock Exchange Group. It specialises in the production of indices to measure the performance of shares in a group of companies. The best known index is the FTSE 100, made up of the largest 100 companies trading on the London Stock Exchange.

Fund

In investment terms a fund is a pool of money collected from many investors and managed by a professional fund manager. Funds give you the opportunity to invest in a range of companies even if you have quite small amounts to invest. The fund manager decides the composition of the fund from time to time. The money in funds is invested in stocks and shares and other types of assets such as corporate bonds, gilts and property. The amount of each asset held will vary.

G

Gilts

Gilts are bonds issued by the British Government to raise money. They operate in the same way as corporate bonds.

Government bonds

These are bonds issued by a Government to raise money. They operate in the same way as corporate bonds and gilts.

I

Income paid out

Funds where the units that are issued are “Income Units” will pay a distribution (or income) at regular dates throughout the year. Depending on the fund, this distribution will can be paid monthly, quarterly, half-yearly or annually.

This income typically comes from dividends or interest provided by the underlying investments of the fund.

ISA

ISA is short for 'Individual Savings Account'. They are an easy way to save in a tax-efficient way. Each tax year UK residents are entitled to an ISA allowance, which is the total they can invest in to an ISA during the tax year. There is no income tax or capital gains tax to be paid on the investment returns.

There are four main types of ISA:

• Cash ISA
• Innovative finance ISA
• Lifetime ISA
• Stocks & shares ISA

The government sets the allowance limits for each tax year.

K

Key Investor Information Document (KIID)

This document provides the investor with important information about their potential investment fund including costs, risks, performance and objectives. It is a requirement that this document be available to the investor prior to investment. The regulator specifies both the information contained in the document and the format of it.

O

Ongoing Charges Figure (OCF)

The OCF includes the Annual Management Charge (AMC) and the additional costs of managing a fund, such as the Trustee’s fees and expenses and audit fees but excludes portfolio transaction costs. The OCF percentage is an annual figure which is applied to the value of each of your funds.

S

Shares

Shares are the units of the ownership of a company, usually traded on the stock market. They are also known as stocks, or equities.

Stock market

The stock market, or equity market, is a series of exchanges where shares in public companies are issued, bought and sold.

U

Unit trusts

Unit trusts are collective investments. This means we pool your money, along with other investors' money together in a fund called a unit trust. Professional investment managers, supported by a team of experts, manage all our unit trusts. They're responsible for investing the money to achieve each fund's particular objectives. Please remember that if your unit trust is not held within an ISA then your investment is subject to the usual Capital Gains Tax rules.

Unit type

Your units will either be issued as “Income Units” or “Accumulation Units”:

Income Units: Any income of the fund, allocated at the end of the relevant accounting period, is paid in the form of an income (distribution) to you. This income can still be reinvested but the key difference is that you have the choice to either reinvest the distribution or have it paid to you.

Accumulation Units: Any income of the fund, allocated at the end of the relevant accounting period, is retained in the fund and consequently is reflected in the price of accumulation units.