Glossary of terms

A

Accumulation units

Units where net income is automatically used to purchase more underlying stocks and shares for the fund. This is reflected in the unit price and unit holders will generally benefit from not having to pay an initial charge on the re-invested income.

AGM

The 'Annual General Meeting' is the official event at which a company's directors present their annual accounts to shareholders.

AIM

The 'Alternative Investment Market' is an exchange for growing companies that haven't yet qualified for the FTSE. The governing rules over stock entry are less stringent than the requirements to become quoted on the Official List.

Allotment Letter

When a company makes an issue of new shares an allotment letter is issued to applicants notifying them that they have been successful in gaining shares and determining the amount they have actually received.

Alternatively Secured Pension (ASP)

ASP is basically the technical term for income drawdown after age 75. After age 75 the Government rules on your income drawdown plan change which affects the options available to you. If you already have an income drawdown plan, taken out before you turned 75, you will either have to purchase an annuity or move into an ASP plan.
(Aviva are planning to develop an ASP plan).

Amortisation

The process of paying off a debt liability and accrued interest by regularly paying a series of equal amounts, eg when you pay off a mortgage or car loan.

Annual report

A company's annual report is a financial and operating statement of the previous year's trading. It gives you detailed information that you may find useful when share trading. However it can't be used to predict future share performance.

Amount of Target Income

The amount of money you would like to receive annually as income.

Annual Rate of Return (see Rate of Return)

The rate of return over a year.

Annuity

A contract guaranteeing, for an agreed period or until death, a series of regular payments in return for a capital sum.

Annuity Rate

This rate is based on several things, including age, state of health, and the interest rate on Gilt's. A higher annuity rate at retirement gives a higher income.

Asset

Anything owned that has (commercial) value. It can be financial in nature (money, stocks, bonds, shares, invoices, securities), physical (buildings, machinery, cars, land), or qualitative (qualities, skills, things of great intrinsic value).

B

Bankruptcy

When an individual or company has reached the point of being totally incapable of repaying debts. When this happens to a company they will go into liquidation or receivership.

Bargain

The name for a transaction on the stock exchange.

Base Rate

The lowest rate of interest that banks are prepared to lend money.

Basis Points

Can be used to describe changes in stock and bond prices. Each percentage point change in a bond yield equals 100 basis points.

Bear

An investor who believes that the market will decline.

Bear Market

A market in which the price of shares is falling over a prolonged period.

Beneficial Owner

The person entitled to the benefit of property. This can be different to the person who is the legal owner, eg where an investment is held by a nominee.

Bid (also called Bid Price)

The price at which an investor can sell on the market.

Bid-Offer Spread

The difference between the bid and the offer price. The size of the spread is affected by several factors, including current trading volumes and market conditions.

Black Monday

Monday 19th October 1987 was the worst day for Wall Street since 1914. The Dow Jones fell 22.6% triggered by anxiety over inflated stock price levels and rising interest rates.

Blue Chip

Stock of a large company with a good reputation in the market, generally built up through several years of solid trading performance and membership of one of the leading stock exchange indices, eg FTSE 100.

Bond

A certificate issued to an investor, often by a Government or public company, to raise funds to repay money borrowed. The bond issuer agrees to repay the original (nominal) amount borrowed to the investor after an agreed time period (upon bond maturity). Bonds also usually repay a fixed interest rate over a specified time.

Bonus Issue

This is a free issue of shares to existing shareholders as a means of distributing company profits. Investors typically receive a fixed number of new shares for every share they own, for example one-for-three.

Book Value (same as Book Cost)

The amount originally paid for a holding of shares or other assets.

Bull

An investor who believes the market is rising.

Bull Market

A market in which the price of securities is rising over a prolonged period.

Business day

Any working day for the stock market. The stock market is generally open each weekday except Bank Holidays.

C

Cancellation

The process whereby units are cancelled to pay for certain expenses of unit linked funds.

Capital

Money or valuable assets which if invested can grow in value or generate an income.

Capital Appreciation/ Growth

The increase in the original value (ie principal) of an investment.

Capital and Interest Mortgage - (Repayment mortgage)

This is one of the most usual types of mortgage. The monthly repayment made by the borrower includes a repayment of capital borrowed and an amount for the interest charged. At the beginning of the mortgage most of the payment is used to cover the interest and only a small amount is paid towards reducing the mortgage. Over the term of the mortgage more and more of the monthly payment is comprised of paying back the capital borrowed. As long as the monthly payments of repayments are always made on time the mortgage is guaranteed to be paid off at the end of the term.

Capital Gain

The increase in asset value or investment value from the time it was bought to the time it was sold.

Capital Gains Tax (CGT)

Payable at the rate equivalent to the taxpayer's highest rate of income tax on gains arising from the sale of a chargeable asset. Unit trusts and investment trust companies are exempt from paying Capital Gains Tax on the disposal of shares in their underlying portfolios. Individuals may be subject to CGT when they sell assets eg units/shares. ISA/PEP wrapped investments are free of CGT, although they do have annual investment limits.

Capitalisation Issue

Also known as a scrip issue, Bonus issue. These are new shares issued by a company to its existing shareholders, usually in a mathematical proportion to the number of shares already held. These shares are issued free of charge.

Capital Loss

The amount by which an asset has decreased in value since it was acquired.

Cash Dividend

Companies distribute profits to shareholders in several ways. The most common way is to pay a cash dividend to shareholders. The dividend is usually paid as an amount per share to investors holding shares on the ex-dividend date (see also Stock Dividend).

CAT

If an ISA carries the CAT mark, it meets Government standards for reasonable Charges, easy Access and fair Terms. CAT standards don't provide guarantees of suitability or return from an ISA. They simply show which ISAs conform to the standards. CAT standard ISAs are voluntary, and not all ISA providers use them. Non-CAT standard ISAs may have features that make them better for particular investors, but still fall outside the CAT standards.

CCJ

A County Court Judgement recorded against a person eg for non-payment of debt.

Certificated Stock

A share where a paper share certificate can be obtained by the investor.

Closing Price

The last price at which shares were quoted on the London Stock Exchange before the end of the day's trading.

Collateral

Also called security. Collateral is an asset that a borrower agrees to give up to a creditor if they default on a loan agreement; ie it serves as security for a loan or other credit.

Commission

This is the fee payable to a broker to cover the cost of executing and settling a transaction. This can also be the payment received by an intermediary on the sale of investment or insurance products.

Compound Interest

Interest paid on both the principal balance and on any accumulated (unpaid) interest.

Consideration

A cash amount for a particular transaction.

Consolidation

This is when a company proportionally increases the nominal value of each share whilst decreasing the number of shares in the issue.

Contract Date

The date of the contract to buy or sell shares or units.

Contract Note

A written confirmation of a trade, issued by the broker to the customer for whom the trade was executed.

Convertibles

Securities issued by a company to raise funds which can be converted at some point in the future into either preference or ordinary shares in that company.

Conveyancing

The legal process of buying and selling a property.

Corporate Action

An action taken by a company which affects the existing share structure. Such actions may benefit shareholders, such as rights issues or bonus issues. Other types of action are less easy to interpret, such as take-overs or mergers.

Coupon

This is the stated rate of interest any fixed income security such as a Bond.

Creation

The process of increasing a unit trust fund by creating new units is also called "appropriation". The unit trust manager pays the trustee for new units at the appropriation price, which is the offer price (on a forward basis) before the apition of any initial charge.

CREST

Centralised Settlement System for Securities Traded on the London Stock Exchange. This is an electronic share settlement system operated by CRESTCo. Most shares are now registered on the CREST system and can be traded, settled and held electronically.

Critical illness policy

Such policies can be stand-alone or written as an ap-on to a variety of other contracts eg Term Assurance or Mortgage Life Insurance. They pay out a lump sum in the event of being diagnosed as having one of the illnesses or conditions listed in the policy (eg certain types of cancer, heart attack etc.) during the plan term.

CTV

'Consolidated tax voucher'. Records all tax credits earned by an individual through a particular broker, in a particular tax year.

Cum Dividend

Shares quoted prior to the ex-dividend date (and after the dividend has been declared) are termed as being 'cum dividend'. This means that purchasers of shares at this point will be entitled to the dividend. After ex-dividend date purchasers are no longer entitled to the dividend.

Custodian

A bank or other institution legally responsible for holding the assets of another.

D

Deal

A sale or purchase transaction.

Deal date

The date upon which a deal was placed.

Dealing limit

This is a limit on the value of shares or units that can be traded at any one time.

Debt / Existing Debt

Something owed to one party by another.

Debtor

A person or entity, such as a bank or government, that owes a debt to some other person(s).

Debit card

A payment card where the proceeds are funded directly from the holders account.

Decreasing Term Assurance

A term assurance plan where the premiums you pay remain the same throughout the plan term, however the cash lump sum payable decreases to reflect your decreasing mortgage loan. The plan is designed specifically to protect a repayment mortgage. The cash lump sum is paid out if you die during the term. If it hasn't been paid by the end of the term, the plan ends and nothing is paid out.

Deferred Shares

Part of the ordinary capital of a company. These shares have exactly the same rights as ordinary shares with the exception that they do not get a dividend until certain conditions are met; for example, until a specified date in the future or unless a certain level of profitability is reached.

Dematerialise

To transfer a paper shareholding into an electronic shareholding.

Demutualisation

Demutualisation occurs when a mutual society, owned by its members, restructures as a public limited company and ownership transfers to shareholders of the new company.

Dependants

People who are financially dependent upon another person.

Deposit

When you put money on deposit it earns interest at a rate relevant to reserves and long term investment conditions. The rate of growth on your deposit depends on the interest rate offered, but it won't fall in value.

Deposit Account

Offered by most banks, building societies and some insurance companies, a deposit account is a way of saving and investing. You pay money into the account. It usually pays interest net of 20% tax and often has a notice period to avoid loss of interest. There's no risk of losing the money paid in. If you're exempt from paying tax you can claim back the amount deducted. Alternatively, non-UK residents and non-tax payers can apply to have their interest paid gross.

Derivative

A contract giving the right to buy or sell a particular security, at a fixed price, at a future point in time to the purchaser of the contract. Owners of derivatives do not own the underlying security until the contract is exercised. The most common forms of derivatives are futures and options. The value of derivatives can fluctuate widely and they are regarded as high-risk investments.

Discount

When newly issued Stocks have a market price lower than the issue price.

Discretionary Income - Annual

The income you have left after paying for essentials, eg shelter, food and clothing.

Disposable Income - Annual

The income you have left after tax deductions.

Distributions

The income earned on the underlying investments in collective investment vehicles is passed on to the investors through distributions. These distributions can be either notional distributions or income distributions.

Distribution period

The (usually half yearly) period over which the dividend income of a collective investment is paid.

Dividend cover

The extent to which the last dividend paid out by a company is covered by the profits that the company has made. Dividend cover is calculated by comparing a company's overall profit to its dividend pay-out.

E

Earnings Per Share

The after-tax profit made by a company in the last financial year divided by the number of shares in issue.

Employer's benefits

Benefit's provided by an employer eg Permanent Health Insurance or an employer's pension scheme, which may provide death in service benefits.

EGM

'Extraordinary General Meeting' is any official company meeting that isn't an annual general meeting.

Emerging Market

A stock market of a developing country, usually a small market with a short operating history.

Endowment Insurance

A contract offering you a combination of savings and life insurance. You make regular payments for an agreed period after which you're entitled to a lump sum. This period, called the term, is usually set at anything above 10 years. If you die before the end of the term your endowment pays out a predetermined lump sum. All endowment policies carry charges, which differ among providers.

Equities

Equities are ordinary shares which allow division of ownership according to the number of shares held. Equities may or may not be listed on a stock exchange.

Equity

Equity is ownership or part ownership eg shares in a company, property etc.

Equity - (Housing)

The difference between the current property value and the amount still owed on any loan secured against it.

Ethical investments

The term given to investment in companies where the companies have been selected because of a certain ethical stance that they have. However there are no required qualification criteria for this and because a fund is ethical in one area does not mean it is ethical in another. For example, a fund may avoid investing in alcohol or in companies that exploit labour from poor countries but may invest in tobacco.

Execution

When a trade instruction, or order, is dealt on the market by a broker it becomes executed. It is at this point that the trade becomes a firm contract between the parties at an agreed price.

Ex Dividend

Shares quoted after the ex-dividend date (and before the payment date) are termed as being 'ex dividend'. This means that purchasers of shares from this point on will not be entitled to the dividend.

Ex Dividend Date

The date on which entitlement to dividends is decided. All holders of shares on ex-dividend date are entitled to the dividend. Also known as Record Date.

Existing debts

Financial debts that have yet to be repaid - such as Loans, Hire-purchase, Overdraft, Credit Card Balances.

Execution date

This is the date when the trade is made, as opposed to the settlement date which is the date when the shares are actually exchanged.

F

Financial Conduct Authority (FCA)

The Financial Conduct Authority was created by the Financial Services Act (2012) and is directly accountable to HM treasury.

Financial Services Authority (FSA)

This was an independent non-governmental body that was replaced by the Prudential Regulation Authority and the Financial Conduct Authority on 1st April 2013.

Flotation

The first issue of shares by a company on the stock exchange, allowing the public to invest.

Foreclosure

When a creditor repossesses property purchased with borrowed money because the debt isn't being repaid as formally agreed.

Foreign Income Dividends (FID)

Some collective investments are invested in foreign investments which when they distribute income can be in the form of a FID or Foreign Income Dividend. Tax cannot be reclaimed for FIDS that fall within an ISA or PEP wrapper.

Forward pricing

The system of pricing where purchase orders from clients are placed prior to the valuation point and consequently priced at the next valuation. The investor does not know the price they will pay or receive for units until after the application has been processed.

FTSE

'Financial Times Stock Exchange' (index). The "footsie" measures the performance of certain sectors of European markets, providing up-to-the minute indicators of how share prices are performing. For example the FTSE 100 is an index containing the top 100 UK shares listed on the London stock Exchange.

FTSE Indices

A range of indices, operated by FTSE International Limited, which record the performance of certain sectors of the LSE markets. Each index comprises a specified set of companies, such as the FTSE top 100. The value of the index is derived from the values of the underlying shares and provides an up-to-the minute indicator of how share prices are performing in that sector.

FTSE International Limited

Financial Times Stock Exchange International Ltd, a joint venture between the Financial Times and the London Stock Exchange which supplies investment data and analysis from the London Stock Exchange.

Fund

This is money invested to support or finance a particular goal eg a pension fund provides a lump sum to purchase a pension in retirement. This may also be a pooled investment managed by a professional fund manager.

Fund holding

The number of units held by a customer in an investment fund.

Fund Manager

Responsible for managing the investment of customer's contributions in accordance with the investment objectives/guidelines of an investment fund.

Fund of funds

An investment fund, which invests in other funds.

Fund provider

The company providing an investment fund.

Funding

Providing capital to finance a project.

Future

A type of derivative where the contract to buy or sell securities must be exercised on the specified date at the specified price (of the underlying security). If the price has moved against the purchaser significantly, large losses can be incurred.

G

Gain

The amount by which an asset (eg share holding) has increased in value since purchase. Gains are realised when assets are sold.

Gilt's

'Gilt-Edged Securities' are bonds issued by the UK Government, which provide a guaranteed fixed rate of interest and a high degree of security.

Grey Market

Trading taking place between the launch of a new share issue and the arrival of official notification of the allotment of shares to applicants.

Gross income

Income received before deduction of tax.

Growth fund

A fund aiming to provide capital growth rather than income.

Growth rate

The annual percentage return on investment = 'yield''.

H

Historic pricing

Units are priced at the last valuation point and investors therefore know what price they are dealing at.

Holding Company

A parent company of a group of companies, or a company that controls a subsidiary company.

Hostile Take-Over

Take over of a company where the board of the company are opposed to it and recommend to the shareholders that they reject the offer.

I

IMA - The Investment Management Association

The trade body for the UK investment management industry. Members manage over £2,000 billion of assets, as at July 2004.

IMRO

The 'Investment Management Regulatory Organisation' which is part of the Financial Services Authority and is responsible for regulating investment management activities.

Income

Money received from employment (earned income) or investment (unearned income).

Income distribution

The income from underlying investments can be paid out to investment holders through income distributions. Investors can generally choose to take this distribution in cash or reinvest it.

Income Fund

A fund aiming to provide income rather than capital growth.

Income Multiples

These are used as a rough guide to establish how much a home lender will lend you for a mortgage. The maximum you can borrow is roughly 3 times your annual income. If you are buying with a partner the amount is around 2½ times your combined incomes. These 'multiples' vary - you could be offered slightly more or less.

Income units

Investors holding such units are entitled to regular income payments provided that the fund has an excess of income over expenditure. These are known as income distributions and take place at specified times in the year (can be monthly, quarterly, bi-annually or annually).

Inflation

Inflation measures the rate at which general prices for goods and services are rising. One measure in the UK is the Retail Price Index (RPI).

Inflation Rate

The percentage change in the price level between two consecutive periods. The Retail Price Index (RPI), The Consumer Price Index (CPI) and the Gross Domestic Product (GDP) price deflator are common price indices used to measure inflation.

Initial Income

The initial amount of income you receive from your employer, the state or any other source.

Inland Revenue

A Government department which calculates and collects income tax, Capital Gains Tax, stamp duty, corporation tax and inheritance tax.

Inland Revenue Funding Limit - Personal Pension Contribution Limit

There is a ceiling on the total amount of contributions you can pay into personal pension schemes. Contributions are measured as a percentage of your earnings, and are permitted up to a certain limit. This earnings cap maximum is currently £102,000 for the tax year 2004-05, and is increased annually in line with the cost of living. Normally, the annual contribution ceiling is 17.5% of earnings up to the maximum earnings cap, for those whose age on the first day of the tax year (6 April) is 35 years or less. This percentage of earnings allowed increases with age - eg 51-55 years = 30%, and 61 -74 = 40%.

Inland Revenue Limits

Restrictions on benefits derived from, and contributions made towards, an approved occupational or personal pension scheme, in return for tax relief.

Insider Dealing

Buying or selling shares in a company when one is privy to unpublished key information about that company or have been told by someone who has such access.

Insurance Policies

A contract which usually provides a lump sum or regular payments on the occurrence of a specified event eg death, illness etc, in return for payment of regular or single premiums.

Interest Only Mortgage

This is a mortgage where only the interest is repaid to the lender each month. The capital borrowed is not repaid to the lender until the end of the mortgage. The capital could be repaid by the proceeds of some form of investment vehicle eg endowment, pension, PEP, ISA etc'. It is the responsibility of the borrower to ensure that the repayment vehicle will pay off the mortgage at the end of the term. Remember that Life Assurance may also be needed separately.

Interim Dividend

When a company pays dividends more than once a year, dividends other than the final one are called interim dividends. Typically, dividends are paid twice a year, one interim and one final dividend.

Interim Figures

A company's quarterly / half-year results.

Invested monies

Money held in investment vehicles, such as bank accounts, bonds or unit trusts.

Investment

This is an asset, financial product or fund of money, which may generate income or grow in value over a period of time.

Investment Return

This is the change in value of an investment or amount of income generated by that investment over a given time period normally expressed as a percentage.

Investment Risk

This is the risk that an investment or savings plan will decrease in value either in actual terms or compared to inflation.

Investment Trust

This is a form of collective investment in a company. Investors' money is pooled and managed by the company, who then invests the capital in a portfolio of companies. This serves to spread the risk. They are close ended in nature and are listed on the Stock Exchange. Shares are dealt at prices determined by supply and demand (as opposed to the value of the company's assets).

ISA (Individual Savings Account)

An ISA allows you to save money on a regular basis, or invest a lump sum of money, without having to pay income or Capital Gains Tax on the proceeds.

Issuer

The company that issued shares (or other securities) to raise capital.

J

Joint Venture

An association of companies or individuals to jointly explore, finance or direct an initiative for mutual benefit. The different participants may have different shares in the joint venture, resulting in different levels of profit or loss.

K

Key Features Documents (KFDs)

These are documents that set out the key features for a particular investment, including for example investment strategies.

L

Last Trade Price

The price of the last quoted trade on the stock exchange today.

Level of Cover

The degree or scope of protection provided by an insurance contract and/or protection plan.

Level Term Assurance

A term assurance policy where the sum insured, the plan term, and the premiums don't change. They are all determined at the start, so the cover remains the same throughout the plan's term. The sum insured is paid out if you die during the term. If it hasn't been paid by the end of the term, the plan ends and nothing is paid out.

Liabilities

These are debts or future obligations of monetary value. There are many different types of liability. Company liabilities are recorded in their financial statements.

LIBOR

London Interbank Offered Rate'. The Interbank interest rate agreed between banks for their own loans and deposits.

Life Cover

This is the total level of death benefit protection you already have in place, such as the sum insured of any life policies you hold, any policies linked to your mortgage, and benefits your employer might pay.

Life Insured (Life assured)

This is the individual upon whose life a life insurance policy is based.

Life Policy

A general term covering a variety of types of personal protection policy. The one thing they all have in common is that a payment on death is one of the purposes of the contract.

LIFFE

London International Financial Futures and Options Exchange'. The official UK exchange for trading equity based derivatives.

Lien

This is a right to retain possession of another's property pending discharge of a debt.

Liquidation

The winding up of a company no longer in a position to meet its debts or which otherwise wishes to cease trading. When the company's debts have been paid, any assets left over are eventually distributed among the shareholders.

Liquidity

This is the ease with which an investor can convert assets into cash. This is directly related to how easy it is to trade a share on the market: the easier it is, the more liquid the share.

Listed Company

A Company which has agreed to abide by the stock exchange's listing rules and whose ordinary shares can be bought and sold on the exchange.

Listing Rules

Companies must fulfil an initial set of requirements in order to become listed on the stock exchange and abide by the stock exchange rules in order to remain listed. The full listing rules are complex and can be obtained from the stock exchange web-site.

Loan Stock

A fixed interest stock that may or may not be secured against all or a specific part of the assets of a company. The interest will be paid whether the company is profitable or not.

Long Term Illness

An illness or medical condition that prevents a person from working. Protection in the event of a long term illness may be in the form of a replacement income or a lump sum.

Loss

The amount by which an asset (eg share holding) has decreased in value since purchase. Losses are realised when assets are sold.

LSE

London Stock Exchange'. The LSE is divided into three separate markets; the 'main market' (equivalent to the Official List), the Alternative Investment Market (AIM) and the Techmark. Each has separate rules for entry and is used by companies with different capital raising requirements. Any company wishing to raise public capital in the UK will apply to join one of the LSE markets. Many international companies also raise capital in this way.

M

Management charges

Generally, an initial service charge is paid by the investment holder within the offer price used at the time of purchase. Fund managers may also charge an annual management fee based on a set percentage of the value of the fund (this is paid to the manager directly from the fund).

Market Capitalisation

The total number of shares in issue of a company multiplied by their current market price. This can be used to work out the market value of one company or the value of all companies listed on the exchange.

Market Claim

If holders of shares are not registered on ex-dividend date because a recent trade has not settled the broker will claim the dividend back from the seller of shares.

Market Hours

These are the trading hours specified by the London Stock Exchange for stock market participants to buy and sell shares.

Market Maker

A member of the Stock Exchange obliged to offer to buy and sell shares in which they make a market. Market makers together define the best bid or offer prices quoted by the market. When private investors buy or sell shares through a broker, a market maker is usually involved.

Market Order

An order to buy or sell at the best available market price.

Market Value

This is the current value of a share holding, based on the latest quoted market price.

Materialised Shares

This is when the share certificates are held in paper form.

Maturity Date

This is the date on which the proceeds become payable under an investment or insurance contract.

Maxi ISA

An investor can purchase one Maxi ISA in a tax year with a single provider. The investment must include a stocks and shares component with or without a cash and/or life insurance component. If an investor has contributed to a Maxi ISA in a tax year, they can not also contribute to a Mini ISA in that same tax year.

Merger

The amalgamation of two or more companies into one. The assets of the original companies are either transferred to a brand new company with new share structure, transferred to one of the original entities in return for a cash consideration, or pooled and the accounts of the original entities combined.

Mid Point Rate of Return

Industry’s standard rates of return are specified by the Financial Conduct Authority. They are 4/6/8% for non-tax efficient products and 5/7/9% for tax efficient products. These are used to illustrate potential returns in the future. The mid point is used as default standard, so 6% is used for non-tax efficient products and 7% for tax efficient products.

Mid Price

A price midway between the bid and offer price.

Mini ISA

There are three types of mini ISA:

  • Stocks and shares
  • Cash
  • Life insurance

An investor can hold a maximum of three Mini ISAs in any one tax year but can only invest in one of each type. Each type can be held with a different plan manager. If an investor has contributed to a mini ISA in a tax year, they cannot also contribute to a Maxi ISA in the same tax year.

Money Laundering

A process whereby money generated by criminal activity is run through a series of financial transactions to hide the original source.

Mortgage

A loan to help you buy property, typically a house or flat. The property is used as security (collateral) for the loan until you've fully repaid it. There are usually established payment periods and interest rates (mortgage rates).

N

Near Monies

Highly liquid assets, easily exchangeable for money, but can't be used to buy goods directly. Examples are savings accounts and deposit certificates.

Net Asset Value (NAV)

The value of one unit of an investment fund determined by taking the total assets of a fund, subtracting the total liabilities, and dividing by the total number of units in issue.

Net Relevant Earnings

If you are employed, these are your taxable annual income, and any bonuses, commission or benefits in kind that you may receive. If you are self-employed, these are your business profits less allowable expenses and capital expenses.

New Issue

This is when a company raises capital through issuing new shares on the stock exchange. Companies can issue shares many times as they build their businesses.

Nil Paid Shares

A new issue of stock where no payment has yet been made by the shareholders, eg rights issue.

Nominee Account

A safe custody account for stocks where the nominee holds legal title of the assets on behalf of the investor (who is still the beneficial owner).

Notional distributions

The income from the underlying investments of a collective investment can be used to purchase more investments.

O

OEIC - Open Ended Investment Company

An OEIC works as a collective investment vehicle, and in a similar way to unit trusts and investment trusts. It can be self-contained, but most OEICs operate as umbrella funds covering a variety of individual 'sub-funds'. Each sub-fund has different investment aims, and might have different charges. An OEIC issues shares rather than units. These shares differ from investment trust shares in that the number in issue is increased or reduced by the fund managers according to changes in demand.

Offer Price

The price at which an investor buys shares or units.

Official List

The list of stocks traded on the main market of the London Stock Exchange, also known as Stock Exchange Daily Official List (SEDOL).

Open-ended

The size of an investment fund is not fixed in nature and expands or contracts depending on the number of unit holders. New units can be created or cancelled. A unit trust or OEIC is an example of an open-ended investment fund.

Open order

An instruction to buy or sell units or shares which has not been executed as yet.

Option

A type of derivative where the contract to buy or sell securities may be exercised by the buyer of the option prior to or on the specified date at a predetermined price. If the option is not exercised on or before its specified exercise date it expires and the cost of the option is lost.

Order

An instruction to a broker or dealer to buy or sell shares or other tradable assets.

Order Book

The current list of open orders on the Stock Exchange Electronic Trading System (SETS).

Order date

Date an order is made.

Ordinary Shares

Shares in the ownership of a company. Ordinary shareholders own the company, and so receive varying dividends depending on the profitability of the company.

Outstanding Debt

The amount of debt remaining.

P

Par

The nominal value or face value, of a stock. It's the amount per share raised by the company when first issuing the shares.

Pari Passu

Equal in all respects (Latin)
A corporate action in which a line of stock is issued by a company which is identical to the existing class of security except that it does not qualify for a dividend or has some restriction. At some point, the separate lines are merged for trading (at EX date) and on the register (merge date), thereby becoming Pari Passu

Payment Date (Dividends)

The date on which payment of dividends is made by the company registrar.

Pension

A regular sum of money paid to a person when they retire.

Pending settlement

Within our Share dealing account, a trade is said to be 'pending settlement' during the time between the execution date when the order was placed, and the settlement date, when the shares are actually exchanged.

Pension Annuity Rate

(This determines the amount of regular income at retirement annuity) bought with your pension fund. The annuity rate will depend on many factors, including your age, your health, general economic factors at that time such as interest rates, any annuity guaranteed period, any regular increase to apply each year (escalation) and how many times and when in each year the pension will be paid.

Pension Contract

Aims to accumulate sufficient funds to maintain your standard of living when you retire. The fund you build through your working life is used to buy an 'annuity', which provides you with a retirement income.

Pension Fund

A reserve of money, contributed to by one or many persons (individually or collectively), eg company employees and/or employers, to provide a pension to the person(s) entitled at a later date, usually upon retirement.

Pension Plan

A contract where single or regular contributions are invested to build up a pension fund which will be used to purchase a pension.

PEPs

Personal Equity Plans offer tax benefits to investors in UK Company shares. Plans have to be administered by an authorised plan manager, which may be a unit trust group. Replaced by ISAs on 5 April 1999.

Personal Pension Plan

An approved pension plan (ie eligible for favourable tax concessions). If you're an employee who doesn't have opportunity to join a company pension scheme, or if you're self-employed, you can take out a personal pension. You'll need to make contributions - to be invested by your personal pension provider. These will grow over the years to retirement, and benefit from associated tax relief. When you retire, you'll receive a pension.

Plan Manager

The company managing an investment.

PLC

'Public Limited Company'. A Company whose obligations to creditors are limited by shares and who has fulfilled the legal requirements to attain public status (this does not necessarily mean their shares are tradable by the public).

Portfolio

This is a group of investments held by an individual or other entity. A portfolio will commonly be constructed to meet particular investment objectives, eg high risk, low risk, ethical, etc.

Preference shares

Normally provide a fixed income per share, and confer on shareholders the right, ahead of ordinary shareholders, to the return on capital in the event of liquidation of the company.

Premium

The amount the purchaser of an options contract pays to acquire the contract. Alternatively, it's the market price above the true value of the underlying investment. It may also be an amount paid for an insurance contract in the form either of a single payment or a series of regular payments.

Previous closing price

The share price at the close of business the previous working day.

Price-to-Earnings Ratio

The price to earnings ratio is calculated by dividing the current share price by the latest earnings (net profit) per share. It measures the level of confidence investors have in a company.

Principal

The original value of an investment or debt.

Prospectus

A prospectus is generally published by a company seeking to place a new issue of shares and is designed to give potential investors key facts about the company, including its core business activities and objectives, board of directors and other financial information.

Protection Policies/ Plans

These are generally taken out to provide cover for you, your family, home/mortgage, business, wealth, by providing cash payments on the happening of a specified event eg death, critical illness, redundancy.

Prudential Regulation Authority (PRA)

The Prudential Regulation Authority was created by the Financial Services Act (2012) and is part of the Bank of England. It will have close working relationships with other parts of the Bank, including the Financial Policy Committee and the Special Resolution Unit.

PTM levy

A fixed levy (£1.00 to date) on all trades of value over £10,000 payable to the Take-overs and Mergers Panel of the LSE.

Q

Quotation

The price at which a market maker will trade securities.

Quote

A price at which a market maker offers to buy or sell shares.

Quoted Company

Any company whose shares are listed on the official Stock Exchange.

R

Rate of growth

The annual percentage return in investment = 'yield'.

Rate of Return

The increase in value or level of income generated by an investment over a specified period of time, normally expressed as a percentage.

Real Income

The value of your income after adjusting for inflation.

Real Rate of Return

The rate of investment return after taking into account taxes and inflation.

Redemption

A corporate action in which a company repays the loan stock to stockholders. Also known as a "repayment".

Reduced Pension

If you take a tax-free lump sum from your pension fund when you retire, you effectively reduce the income you'll receive directly from the fund. The smaller the fund, the smaller the annuity (income) the fund will provide.

Registered holding

The number of shares or units held by an investor, which have been registered.

Registrar

An organisation that maintains the register of shares on behalf of a company. The registrar is responsible for recording changes in share ownership and making adjustments for stock dividends and other corporate actions, eg bonus and rights issues.

Regular income plans

Investment plans designed to provide an income.

Regular savings plans

Plans which permit regular investments eg monthly contributions.

Reinvestment

Where the proceeds of an investment are used to fund a new investment. Also when an income distribution due to a unit holder is used to buy apitional units, rather than being paid out in a cash form. See also Accumulation units.

Reinvestment price

Price used to calculate reinvestment units.

Rematerialisation

This is when share certificates held electronically are converted so that the details are held in paper form instead.

Retained earnings

Companies pay dividends to shareholders out of net profit after tax. Some or all of this profit may be retained by the company for investment in the business, rather than paid out to shareholders. In general, small growing companies tend to retain more earnings than larger, more established companies.

Revenue

Total income generated by a company in any financial period.

Retirement Annuity Contracts

These were pre-1988 personal pension contracts originally referred to as Section 226 contracts. They were popular investment vehicles for people planning their retirement. They were replaced by personal pension plans in 1988.

Rights Issue

Existing shareholders are offered the chance to purchase apitional shares in proportion to their current shareholding. These extra shares are often offered at a lower price than current market value.

RSP

A Retail Service Provider is a market maker who offers prices to buy/sell stock to retail customers.

S

S226, Section 226 Policies

Pre-1988 personal pension plans, also referred to as Retirement Annuity contracts. They were popular investment vehicles for people planning their retirement. They were replaced by personal pension plans in 1988.

Salary

Wages, income and benefit received on a regular basis, usually weekly or monthly.

Salary Replacement

An alternative source of income which you may receive, whilst unable to work after suffering illness or injury.

Saving

The regular putting aside of money out of income, usually to build up capital for the future.

Savings Growth

If you make a one off payment, or contribute regularly, to an interest-bearing bank account or investment fund, your money may 'grow'.

Scheme Of Arrangement

A corporate action in which a company replaces one or more of its lines of security with other securities, cash, or a combination of securities and cash.

Scrip Dividend

A benefit distribution in which a company distributes dividends in share form or a combination of shares and cash.

Scrip issue

A free issue of stock to existing shareholders in proportion to their current share holdings.

Secured Debt

A debt backed up by some collateral. If the debtor defaults on a payment, the creditor may foreclose/ repossess the property used as collateral, he can then sell it to repay the loan.

Security / Securities

These are freely tradable assets quoted on an exchange and issued for the purpose of raising funds. The assets become security for the original investment paid by the purchaser of the security. There are many different types of securities, including stocks and shares, derivatives and bonds.

SEDOL Code

The identifier used by the stock exchange to distinguish shares and other securities on the 'Stock Exchange Daily Official List'.

Self-regulation

The process by which financial services organisations became responsible for overseeing and policing their own industry under the Financial Services Act 1986, through a network of self-regulatory organisations (SROs).

Settlement date

The date on which a trade will be settled. In relation to shares, this is the date on which cash and shares must actually be exchanged by the parties in a trade.

Settlement

The payment of cash for securities, or the delivery of securities against payment.

SETS

'Stock Exchange Trading System'. It is an electronic order matching system used for trading shares between stock exchange members (brokers and market makers).

Share Certificate

A record of part ownership of a company entitling the owner to a share of future profits of the company, in proportion to the number of shares held.

Share class

Companies can issue different classes of share with different rights and obligations attached to them. A typical example is 'A' and 'B' shares, where 'A' shares allow the investor to vote at the company's AGM.

Share exchange scheme

A scheme whereby an investor's existing equity portfolio can be exchanged for another investment such as units in a unit trust.

Shareholders' Funds

The total of a company's paid-up share capital, retained earnings and any surplus over book value after an up-to-date valuation of the fixed assets. It forms the basis for the calculation of net asset value.

Shares

Issued by a corporation to raise money, a share gives the holder a degree of ownership of part of the company.

Shares In Issue

The shares of a company that have been allotted to shareholders.

Shortfall

An amount by which something is less than expected, or necessary.

Shortfall in Income

The difference between the level of income that you receive and the level that you need to receive.

Shortfall Risk

The risk of falling short of an investment target.

Simple Interest

Interest paid only on the principal and not on any accrued interest.

Special dividend

An above average distribution from a group of companies.

Specified critical illnesses

Specified critical illnesses can include:

  • Alzheimers Disease
  • Aorta Graft Surgery
  • Benign Brain Tumour
  • Blindness
  • Cancer
  • Creutzfelh3-Jakob Disease
  • Coma
  • Coronary Artery Bypass Surgery
  • Deafness
  • Heart Attack
  • Heart Valve Replacement or Repair
  • HIV resulting from a blood transfusion
  • HIV resulting from an occupational accident
  • HIV resulting from a physical assault
  • Kidney Failure
  • Loss of independent existence
  • Loss of Limbs
  • Loss of Speech
  • Major Organ Transplant
  • Motor Neurone Disease
  • Multiple Sclerosis
  • Paralysis
  • Parkinson's Disease
  • Pre-senile dementia
  • Stroke
  • Third Degree Burn
  • Total Permanent Disablement

The conditions covered will vary depending on your chosen plan.

SROs

Self-regulatory organisations (see self-regulation).

Stamp Duty

This is a tax paid to the Inland Revenue on documents of transfer of certain assets including shares. Stamp Duty is also paid on the purchase of property.

Stock

A term generally used to represent shares and interchangeable in usage.

Stockbroker

Professional who buys and sells shares on behalf of their clients

Stock Dividend

One method of distributing company profits to shareholders (see also Cash Dividend). Stock dividends give existing shareholders a number of new shares according to their existing share holding. Stock dividends are usually optional so that the investor can choose whether to receive cash or shares, because of their different tax implications.

Stock Split

A separation of existing shares issued by a company into a fixed number of new shares. The effect is to increase the number of shares in issue and decrease the price proportionately.

Stock Transfer Form

A document required to transfer a shareholding or unit holding from one party to another.

Subsequent Income

The subsequent amount of money you receive from your employer, the state or any other source.

Sum Assured

A secured, guaranteed amount under a life assurance policy to be paid on death.

Switch

Moving an investment from one fund to another.

T

Take-over

The gained control of one company by another, through purchase of sufficient stock to acquire a controlling interest. Take-overs may be hostile, where the Board of directors of the receiving company are in opposition to the purchase. In this case, the biping company will go public with a bid price and issue a circular to existing shareholders explaining why the bid is beneficial to them.

Target Pension

The amount of money you would like to receive annually, upon retirement.

Tax Exempt Special Savings Account (TESSA)

Replaced by the ISA in 1999 this was a five-year savings account where the interest earned was free of tax so long as the underlying investment was not touched.

Tax free cash / Tax free lump sum

The lump sum benefit that can be taken tax-free from a pension arrangement at the retirement date. The amount is limited by Inland Revenue regulations.

Tax relief

A tax saving allowed by the Inland Revenue whereby payments to, and/or returns from, certain types of investment and savings are free of tax thus potentially increasing the returns eg payments to personal pensions or investments performance from ISA products.

Tax year

The Inland revenue tax year runs from the 6th of April one year to the 5th of April the following year.

Techmark

One of the three separate markets on the London Stock Exchange. Techmark is specifically for companies in the hi-tech sector.

Term

The period of time a policy, bond or contract is issued for.

Term Assurance

A simple and cheap form of life insurance, offering cover over a fixed number of years during which a lump sum will be paid out if the life insured dies.

Tessa only ISA

A TESSA only ISA is a cash ISA intended to receive subscriptions from maturing TESSAs. Amounts subscribed to TESSA only ISAs do not count towards the annual ISA contribution limits.

Today's Terms

Refers to an amount and what it represents today - so compensating for the effects of inflation, for example, which erodes the real future value of an equivalent amount.

Top up

An apitional contribution to a pre-existing investment.

Tracker Funds

Funds that are not actively managed by a fund manager but are set up to match the performance of a particular stock market by investing in all or a representative selection of the companies listed in that index.

Trade

An agreement between two parties for one party to buy shares from the other.

Trade Confirmation

A written confirmation of the details of a transaction agreement, sent to the customer.

Trade Date

The date on which a trade is placed.

Transfers (in and out)

Moving an investment between plan managers or product providers.

Trend

The direction of prices over a specified time period.

Trust deed

A legal document which establishes a trust.

Trustee

An individual, company or institution, such as a bank which holds the trust assets on behalf of the beneficiaries of the trust. A trustee may delegate custody responsibilities to a custodian.

Turnover

That part of a company's overall revenue generated by trading activity (rather than investment income or other forms of income).

U

Uncertificated stock

Stock is uncertificated when it's transferred from a paper shareholding into an electronic shareholding system (CREST).

UCITS

Undertakings for Collective Investment in Transferable Securities, the EEC directive that harmonises the sale of unit trusts throughout the Community, so that all member states' funds can be sold in all other member states.

Underwriters

Usually institutions such as merchant banks, who agree to purchase a company's new issue shares if they are under subscribed, although they charge an underwriting fee for doing this. Their advantage is that the issuing companies are effectively guaranteed the issue money.

Unfranked income

Income from bank interest, government securities and foreign investment, which unlike UK share dividends, has not already borne UK corporation tax, is called Unfranked investment income.

Unit Trust

A trust fund operated by Unit Trust Managers which is a collective investment vehicle pooling investors' money and therefore spreading the risks involved. It is an open-ended investment and therefore units can be created and cancelled depending on demand.

Unquoted shares

These are shares that are not actually traded on any exchange, and are generally those of smaller companies. For example, the company in question may not meet the listing requirements of the exchange.

Unsecured loan/ Unsecured debt

A loan which is not tied to property. In the event of default a creditor would not have a claim to specific property to satisfy the debt. However, a creditor can sue on default and obtain a Court Judgement against you.

Unsecured Pension (USP)

USP is basically the technical term for income drawdown under age 75. It's a way of taking income from part of your pension whilst leaving the rest invested.
An example of a secured route in retirement would be an annuity, where a set income is received for the duration of your life. Because, with USP, the size of your fund can go down as well as up and you can raise or lower the amount of income you take each year, your eventual income in retirement is not defined and therefore it is unsecured.

V

Valuation Date

The date upon which a particular trade was priced.

Valuation point

The time at which an investment fund is valued every day. The value of the fund at the valuation point is used to calculate the price of units, which is then used to calculate the number of units bought and sold since the last valuation point. Most investment funds will have at least one valuation point daily, and some may have more than one.

Valuation Price

This is the price used for the calculation of units bought and sold since the last valuation point.

Virtual portfolio

A virtual portfolio is an area where funds or shares may be tracked or transacted, without financial commitment. It provides access to information and tools which can aid in investment decisions.

Void ISA

This occurs when a customer has invested in more than one Maxi ISA in the same tax year or the same component of a Mini ISA more than once in the same tax year or in a Maxi and Mini ISA in the same tax year.

Volatility - (in relation to Shares)

A measure of relative movement of share price during a given period.

Volume

This is the number of shares traded in a particular share during a trading day.

W

Warrant

This is a form of derivative security that is issued by the company of the underlying share (unlike futures and options) giving the holder the right to purchase shares at a specified price for a fixed or unlimited duration.

Watchlist

A list or portfolio of securities selected by an individual and regularly monitored for possible future investment.

With Profits Bond

This is a single-premium investment contract that offers a relatively low risk, low-volatility, long-term investment. You make a lump sum investment, the aim being to increase this sum over a period of usually 5 years or more. Your bond is invested in the with-profits fund of a life assurance provider. If you withdraw within the first few years you may not receive the full principal - there may be a penalty charge.

X, Y, Z

Yield

The dividend income last given by a share expressed as a percentage of the current share price.

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