Here you’ll find a simple explanation of some of the most commonly used investment terms. If there is any other financial jargon you want translated, please call our Customer Service Team free on 0800 597 2525 or email us at firstname.lastname@example.org and they will be pleased to help.
When the issuer of a bond does not maintain interest payments or repay the face value of the bond at maturity.
Companies in this category sell those necessary products and services which people continue to buy, even when money is tight. This makes company earnings predictable, even in economic downturns. Although low risk, defensives are slow movers - so they lag behind other companies when markets climb.
The Depositary acts as a custodian of the Fund’s assets on behalf of shareholders and watches their interests generally. This is similar to the Trustees of a Unit Trust.
The term derivatives in relation to financial markets is a collective term for futures and options. Derivatives are traded on the London International Financial Futures & Options Exchange (LIFFE), and elsewhere, and the price of a derivative is derived from the underlying security, i.e. bonds, equities, currency or commodity.
When a Fund is single priced, the prices of its Shares are calculated using the mid-market prices of the underlying assets held by the Fund. However, the actual cost of purchasing or selling a Fund’s assets and investments may deviate from the mid-market value used in calculating the Share price due to dealing charges, taxes and any spread between the buying and selling prices of the investments. These costs may have an adverse effect on the value of the Fund known as ‘dilution’. The FCA’s regulations allow the cost of dilution to be met directly from the Fund’s assets (which may affect the performance of the Fund) or to be recovered from investors on the purchase or redemption of Shares in the Fund.
Rather than reduce the effect of dilution by making a separate charge to investors when they buy or sell Shares in the Fund (which is known as a ‘dilution levy’), the FCA’s regulations permits Fund Managers to move the price at which Shares are bought and sold on any given day. This price movement from the basic mid-market price is known as a ‘dilution adjustment’. Like the current dilution levy, the amount of the adjustment is paid into the Fund for the protection of existing/continuing shareholders.
Reduces the effect of dilution by making a separate charge to investors when they buy or sell Shares in the Fund. The amount of the levy is paid into the Fund for the protection of existing/continuing shareholders.
This comprises the debt securities of companies which are suffering financial or operational difficulties, defaults or even the threat of bankruptcy. Investors sometimes buy a basket of these for a very low percentage of par value in the hope that enough companies will survive their problems to deliver an overall attractive return.
The income arising from underlying stocks and Shares that a Fund pays at specific times.
The period during which income earned by a Fund is accumulated before payment to investors.
Represents the income which is expected to be derived from the investment. Also known as the income yield.
Dividends are shares of a company’s profit distributed among its shareholders and are often seen as evidence of a company’s financial strength. Dividend payments are normally paid out at half yearly intervals, shortly after the company’s announcement of their interim (half year) and final (end of year) results/profits.
Authorised investment Funds can be dual-priced.
Such Funds have a higher unit or Share offer price at which you buy, and a lower unit or Share bid price, at which you sell. The difference between the two prices is known as the bid/offer spread.
The buying price includes the initial charge to be paid to the firm that manages the Fund.