A

1. Investment of £100 grows by 5% in the first year
2. You then have £105 at the start of year 2, this then grows by a further 3%, so at the beginning of year 3 the investment is worth £108.15. This is the effect of compounding.
3. So a growth of £8.15 on £100 over 2 years is actually an annual compound return of 4% per year, not 8.15% divided by 2.

B

C

You may have to pay capital gains tax on any profits over a set allowance when you sell assets such as shares or property. You are allowed to make gains up to a certain amount each tax year which are exempt from tax. Everyone has their own allowance so couples can make gains before they have to pay the tax. If your profits come to more than your allowance you only have to pay tax on the excess over the tax free limit.

Some gains you make are exempt from capital gains tax. These include gains from the sale of your car, Personal Equity Plans and Individual Savings Accounts. Also, you do not have to pay capital gains tax when you sell your home provided certain conditions are met.

D

When a company pays money (dividends) to its shareholders.

The spreading of investment funds among classes of securities and localities in order to distribute and control risk. This is a fundamental law of investment meaning simply: "don’t put all your eggs in one basket".

The amount of a company’s after-tax earnings which it pays to shareholders.

The return on share investment, calculated by dividing the dividend rate by the market price of the share.

During pension sharing, section 29 of the Welfare Reform and Pensions Act 1999 (WRPA 99) makes provisions for the creation of a pension debit against the member’s pension rights and for the former spouse to become entitled to a pension credit equal to the amount of the debit.

As a result of a pension sharing order the former spouse will be entitled to a pension credit being equal to that in value to the pension debit against the member’s pension rights.

E

When a member starts to take his/her pension before the normal retirement date of the scheme.

A measure of a company’s performance, calculated by dividing the company’s net operating profit after tax divided by the number of shares in issue.

A ratio calculated by dividing a company’s earnings per share by its current share price. The reciprocal of the price earnings ratio.

An investment portfolio is said to reside on the “efficient frontier” if it is expected to produce returns greater than other portfolios (i.e. with different asset mixes) of the same or lesser risk, where risk is defined as the standard deviation of the returns. In order to calculate an efficient frontier, future investment returns and their standard deviation need to be known. These are, of course, unknown and need to be estimated from past market data. However, there is no guarantee that the past will be a suitable guide to the future and so efficient frontiers cannot be determined with certainty.

Another name for Shares held in a company.

The value of an asset (e.g. a property) less any money owing on it (e.g. loans/mortgages).

An investment fund that invests in Shares in UK or overseas companies. International Equity Investment Funds invest either within developed economies or within emerging markets

The difference between the rate of return available from risk-free assets (such as government bonds) and that available from assuming the risk inherent in more volatile investment such as shares.

When a pension in payment is automatically increased at regular intervals by a fixed percentage rate or the increase of a specific index such as the Retail Price Index (RPI).

An investment approach which takes into account considerations other than solely the financial return potential of particular investments. An ethical portfolio might, for example, avoid investing in alcohol or tobacco.

A payment made that is not legally necessary under the terms of a contract. It is usually made because of a moral obligation and no legal liability is admitted by the payer when making an ex gratia payment.

The return achieved by a security over and above that obtained from a risk-free asset (such as a short-term government bond) held over the same period.

The price of the currency in terms of another currency.

The risk that the value of an investment may be diminished by movements in the exchange rate on a foreign currency.

A term meaning "without dividend" which denotes a share price which is quoted on the basis that the seller, not the buyer, is entitled to the current dividend on the share. (As opposed to Cum Dividend).

Individual(s) or Company(s)who are appointed in a will to deal with the wishes of the deceased, in administering their estate.

This is the extension of a company's intranet out onto the Internet, for example, to allow selected customers, suppliers and mobile workers to access the company's private data and applications via the World Wide Web. This is in contrast to, and usually in addition to, the company's public web site which is accessible to everyone. The difference can be somewhat blurred but generally an extranet implies real-time access through a firewall of some kind. Such facilities require very careful attention to security but are becoming an increasingly important means of delivering services and communicating efficiently.

F

The value of a bond that appears on the face of the bond, unless the value is otherwise specified by the issuer. Face value is ordinarily the amount that the issuer promises to pay at maturity and is not an indication of current market value.

A person or organisation entrusted with the responsibility of managing, holding or investing assets in the best interest of the owner of the assets. Trustees of pension funds are fiduciaries in respect of the members of their funds.

An occupational pension scheme where the final pension an employee receives is linked to the size of their final salary. They are also referred to as Defined Benefits schemes.

Individuals who give advice about all aspects of finance. Financial advisers can advise and sell products for a range of insurance companies and investment companies. Generally, the companies pay them commission when they sell a product although they may assign part of that commission to their client. There are also financial advisers who do not take commission but charge a fee to their clients instead.

Referring to income which remains constant and does not fluctuate, such as income derived from bonds, annuities etc. Any debt security which has a fixed flow of income is known as a fixed interest security.

The financial service industry’s regulator. One of the principal aims of the regulator is to protect the consumer.

Free Standing Additional Voluntary Contribution – Non compulsory payments made by a member of an occupational pension scheme who wants to boost their retirement benefits but keep it separate from their occupational fund.

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

An index of the Share prices of over 800 leading companies and Investment Trusts on the London Stock Exchange. See also FTSE 100 Index.

Pension policy where the only premium received is the Department of Work and Pensions rebate.

A pool of money normally set apart for a purpose, for example, a pension fund to provide benefits under a pension policy.

Analysis of share values based on factors such as sales, earnings and assets that are “fundamental” to the enterprise of the company in question. These factors are considered in light of current share prices to ascertain any mispricing of the shares.

The professional company responsible for the day to day running of a fund.

The monetary value of a fund, calculated by adding up the value of its underlying assets. The price of units in a Unit Trust, for instance, is worked out from the value of all its holdings divided by the number of units issued.

An obligation to make or take delivery of a specified quantity and quality of an underlying asset at a particular time in the future and at a price agreed when the contract was executed.

G

A measure of indebtedness, i.e. the extent of borrowing as against the equity held by a person or company in an asset. The ability to increase exposure by investing in futures contracts without making the underlying cash available. See also Leverage.

Is a transfer of goods or property to another party. There are limits to the amount of gifts you can make without any tax liability.

A loan to the government usually with a fixed rate of interest and usually over a specified period of time. The original amount is usually repaid at the end of the loan period

Low risk investment with high security.

The total before deductions have been taken away.

A measurement of the aggregate goods produced and services provided within an economy over a year and excluding income earned outside the country. Considered one of the main yardsticks of the health and vitality of an economy. See also Gross National Product.

The amount of interest you receive without any Income Tax taken out

An economic statistic which includes GDP plus any income earned by residents from their overseas investments, minus income earned within the domestic economy by overseas residents. See also Gross Domestic Product.

The seven major capitalist powers: Canada, France, Germany, Italy, Japan, UK and US.

One who seeks capital gain from expected further growth in company earnings. Typically, growth investors care less about price/earnings ratios and other valuation measures and more about earnings growth.

Stocks whose earnings have grown at an above-average rate over a number of years and which are expected to continue to grow at a high rate for some time to come.

A Guaranteed Pension amount paid, as a condition of contracting out of SERPS under a Final Salary Scheme up to and including 5 April 1997 from which point different rules apply.

H

The principal Hong Kong Share Price Index.

The published overall inflation rate, unadjusted for non-economic factors, as opposed to underlying inflation.

The practice of undertaking one investment activity in order to protect against loss in another e.g. selling short to nullify a previous purchase. While hedges reduce potential losses, they also tend to reduce potential profits.

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.

The highest rate of Income Tax in the UK, which is currently 40%.

Company which controls another company usually by owning 50% or more of its Shares.

I

An example of the potential growth rates a customer can expect to receive from an investment. The growth rates used are set by the FSA, the industry’s regulator. It is important to remember that the actual return received could be higher or lower than those shown on the illustration.

The design of a portfolio to achieve a target level of return in the face of changing reinvestment rates and price levels. This is done by combining short and long-term bonds in the same portfolio to produce a predictable rate of return regardless of movements in interest rates.

Money received by an individual as a salary, or from investments. Cash deposits and Bonds will provide income in the form of interest. UK Shares will, in most but not all cases, provide income in the form of twice-yearly dividends. The most notable exceptions are the high growth, ‘new economy’ stocks that came to prominence in the late 1990s which generally do not pay dividends. This income is subject to Income Tax.

See unsecured pension.

A portfolio consisting of securities whose principal attractiveness lies in the steady income they provide.

Tax paid by individuals on income received over a certain threshold. The amount paid will depend on the amount earned and unearned during a tax year period.

Unit held within a Unit Trust that pays out to investors as an income, instead of being reinvested.

In the stock market, an index is a device that measures changes in the prices of a basket of Shares, and represents the changes using a single figure. The purpose is to give investors an easy way to see the general direction of Shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.

1. Making an adjustment to allow for the effects inflation can have on money formerly used to reduce the amount payable in Capital Gains Tax.
2. Another name for Index Tracking. An investment strategy designed to produce a rate of return in line with a specific financial index

A portfolio of securities structured in such a way that its value will closely follow a nominated market index, e.g. an equity index fund may be designed to track the FT/S&P All Share Index. There are three main methods in use; Replication, Stratified Sampling and Optimised Sampling.

A way of managing a fund. An index-linked fund simply follows as closely as possible the movement within a chosen market. It does not aim to outperform the market like active management does.

An increase in the level of prices of goods and services in the economy. It is typically measured by examining a basket of goods and services.

IHT is a tax that your estate pays at a flat rate of 40% on assets over a certain limit (the IHT threshold) that you leave on your death.

Any amount of money you give away outright will not be counted for the IHT if you survive for seven years after making the gift. If you die within seven years, taper relief on the amount will apply. This reduces the amount of tax due.

Some gifts are exempt for IHT altogether regardless of how soon you die after making them. They include gifts to your spouse and gifts to charities.

Referring to an activity which is conducted within an organisation rather than contracted out to an external party.

A charge made by an investment provider when you first take out an investment. This is to cover the cost of setting up the investment

The first sale of shares of a company to the public.

The illegal practice of trading in securities on the basis of “inside” or secret information which is not available to the public at large.

A tax levied on most non-life insurance policies.

A person covered by an insurance policy.

A company that offers an insurance policy.

A tax-free transfer between husband and wife under Inheritance Tax rules.

The return earned on funds which have been loaned or invested (i.e. the amount a borrower pays to a lender for the use of his/her money).

The amount of money a customer can earn on an investment. It is usually expressed as a percentage of the total sum invested.

The degree of movement in the price of a security, usually that of a bond, resulting from moves in interest rates.

An international organisation founded in 1947 to promote maintenance of equilibrium in the balance of payments among the various nations of the world. The functions of the IMF include the levying of quotas on member nations to create a pool of funds available to be loaned to nations facing balance of payments problems.

Without a valid will.

An asset acquired for the purpose of producing income and/or capital gains for its owner.

A financial expert trained to analyse the activities and future prospects and earnings of companies and securities for the purpose of investment.

This is a company whose main business consists of specific activities relating to investments. Examples of Investment Companies include stockbrokers and investment fund managers.

The general economic, political, legal and market conditions within which an investment is made.

Bonds which have a credit rating which is sufficient for them to be purchased by most institutional investors.

A contractual agreement between an investor and an investment manager stating the terms and conditions applying to management of the stated assets.

An organisation or individual that specialises in the investment of a portfolio of securities on behalf of individuals and/or organisations subject to the guidelines and directions of the investor. Investment managers offer both pooled investment products and segregated portfolios to a range of clients including pension funds, institutions and private investors.

The set of principles or systems used by investors to govern the way they manage portfolios. Sometimes confused with investment style, which tends more to be associated with the level of risk in the portfolio.

A company that invests in shares of other companies. When investing in an Investment Trust customers actually own shares in the Investment Trust rather than owning the shares it invests in. Investment Trusts are closed ended investment vechicles.

A person whose principal purpose is to invest money prudently and productively over the longer term with the investment objectives being achievement of a reasonable return and capital appreciation to preserve purchasing power. The opposite of a Speculator, who will sacrifice safety of principal for the possibility of larger gains.

Individual Savings Account – A savings vehicle that allows customers to invest in equities, life assurance policies or save in cash without having to pay tax on the returns gained from them. Reclassified as Stocks and Shares ISA or Cash ISA from April 2008, with new rules applying.

J

A high risk, high yield debt security rated below triple B.

K

A document that will contain key information on a financial product, such as:

1. An explanation of the purpose, commitment and risks involved, as well as answers to some of the most common questions asked.

2. Details of what the policy might be worth in future years.

3. Details and explanation of the charges made on the policy.

A life assurance policy to cover the death of a business’s key employee. It pays out a lump sum that is designed to cover the costs of finding and training a replacement as well as covering any loss of profitability.

L

The inception date of a fund.

A simple form of life assurance that pays out a lump sum if the policy holder dies within a specified time period

A synonym for gearing (e.g. using derivative investments to over-invest a portfolio).

Opposite of assets – i.e. debts. In the case of pension funds, a stream of obligations (pension payments).

Abbreviation for London Interbank Offered Rate, the interest rate at which major international banks in London will lend cash to each other, and thus an indicator rate for international lending.

An insurance policy which pays out a lump sum on the death of the policy holder

A pool of money held by a Life Company into which all life assurance policy holders’ premiums are paid and all claims are made from.

The ability of an investment to be easily converted into cash with little or no loss of capital and with minimum delay. An example of a highly liquid asset is a short term bank bill, while property is a relatively illiquid investment. For many securities, the degree of liquidity depends on the depth of the secondary market for that security. Also refers to the maintenance of cash and reserves by a financial institution to fund withdrawals by depositors, unit holders or clients.

The risk that an investment may not be easily converted into cash with little or no loss of capital and with minimum delay.

A market where selling and buying can be accomplished with ease, due to the presence of a large number of interested buyers and sellers willing and able to trade substantial quantities at small price differences.

Lipper Models are based on Lipper's Asset Allocation Analysis process. This Asset Allocation Analysis (AAA) provides a monthly peer survey, covering in excess of 2,800 life & pension and unit trusts, detailing their investment mix and geographical asset allocation.

For an investment manager, the funds asset allocation will provide a performance differential to the benchmark index as well as the funds peer sector. Understanding the allocation of the funds within the peer sector will give the investment manager the ability to measure the potential risk of out or under performing relative to its peers. Hence, AAA enhances the asset allocation decision to take account of the funds performance against its peers.

A company whose shares are traded on the stock exchange and are able to be bought and sold by members of the general public.

A Share which is quoted on a Stock Exchange. Specifically in the UK, this would be a listing on the main market (as opposed to the unlisted securities market or the third market).

Loan Stock

A security bearing a fixed rate of interest. The capital (the amount loaned) is repaid after a given period of time.

Long

In relation to foreign exchange and share trading, referring to an ownership position in which the trader has bought more of a particular security than he or she has sold.

Long Position

An excess of purchases over sales of the relevant investment instrument.

Long Term Care Bonds

An investment bond that is designed to cover the costs of care in old age. Can be used to cover residential home cost as well as expenses incurred when care takes place within the home.

Lower Earnings Limit

The minimum amount which must be earned in any pay period before National Insurance becomes payable.

M

Macroeconomics

Economic analysis concerning broad trends and influences on the economy, such as the interaction of fiscal and monetary policies, GDP, balance of payments etc. As opposed to Microeconomics which focuses on individual units such as companies and markets to assess their influence on the economy.

Managed Fund

Managed funds are generally made up of a spread of other specialist funds so spreading the risk.

Mandate

The agreed objectives given by an investor to his or her investment manager, often including a benchmark, guidelines as to sector exposures and prohibited investments.

Marginal Tax Rate

The tax rate applied as someone moves from up from one tax band to the next.

Market Capitalisation

The sum of the total amount of various securities issued by a corporation, multiplied by the current market price of those securities.

Market Cycle

A business cycle concerned specifically with rises and falls in market activity, as measured by an index.

Market Level Indicator

An index comparing the values of fixed interest securities and Shares, used in determining State scheme premiums

Market Price

With reference to a security, the last reported price at which the security sold. Alternatively, the highest price which a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Market Risk

Risk that relates to the market as a whole and therefore cannot be diversified away simply by holding a greater variety of securities. See also Systematic Risk.

Market Timing

The purchase or sale of securities on the basis of shorter-term price patterns and temporary market opportunities as well as judgements of underlying value. An extremely difficult thing to get right consistently.

Market Value

The value of an asset to a third party on the open market.

Market Value Reduction (adjustment)

A reduction in the value of a claim on a Unitised With-Profits Bond in order to reflect fairly the movement of assets underlying the policy.

Matching

The arrangement of assets, and the return from those assets, to meet future liabilities and obligations.

Maturity

Maximum gain

Maximum Loss

The Maximum Loss represents the worst possible return, over a minimum of three months within the performance period.

Median

The value (rate of return, market sensitivity, etc) that exceeds one-half of the values in the sample and is exceeded by the other half. The median is always the middle value, as distinct from the mean, which represents the average value. For example, if five items cost £20, £80, £100, £300 and £500 respectively, the median value would be £100, whereas the mean or average would be £200.

Member

A person who has been admitted to membership of a pension scheme and is entitled to benefits under the scheme.

Member Choice

Microeconomics

Economic analysis dealing with individual companies or markets and their impact on the economy, as opposed to macroeconomics which focuses on broader influences and trends.

Middle Band Earnings

Earnings between the lower earnings limit and upper earnings limit.

Reclassified as either Stocks and Shares ISA or Cash ISA from April 2008, with new rules applying.

Minimum Contributions

Contributions payable to an appropriate Personal Pension or Stakeholder Pension by the Inland Revenue in respect of a member who has contracted out of SERPS or the State Second Pension. This could also refer to minimum contribution levels that can be paid into a financial product.

Minimum Income Guarantee (MIG)

A means-tested benefit that helps individuals on low incomes at retirement. If you apply, the Department of Work and Pensions assesses your income and decides whether you get a top-up.

Modified Duration

Momentum

The tendency of an asset price to keep moving in the same direction, either upwards or downwards.

Money Market

The market for trade in short-term securities such as Bills of Exchange, Promissory Notes and Government and Semi-Government bonds. Participants in the money market include banks and other financial institutions, life offices, stockbrokers, pension funds and Government authorities. See also Capital Markets.

Money Purchase Schemes

An occupational pension scheme where the contributions made by the employer and employee are set and the final pension an employee receives depends on the size of their fund on retirement. This final fund is then used to buy an annuity. Also referred to as Defined Contribution schemes

Moody’s

American credit rating organisation – operates in similar fashion to Standard & Poor ‘s.

Mortgage Indemnity Insurance

Insurance that covers the mortgage lender, in the event that the property is repossessed and its value when sold does not cover the remaining loan.

MSCI Index

Abbreviation for Morgan Stanley Capital International Index, a series of country indexes of equity prices. The MSCI World Index is one standard for comparisons of international equity performance, although there are others, including the Frank Russell and Financial Times indices.

Mutual Fund

N

National Insurance Contributions Office (NICO)

National Savings

Negotiable Instrument

Net

Net Asset Value (NAV)

Net Interest

New Issue

Any type of security issued to raise additional money. Offerings are made to existing shareholders, through rights issues or entitlements and/or to non-shareholders. Proceeds may be used for retiring debt, for acquisition or for working capital.

Nil Rate Band

The first threshold in the value of an estate on which the IHT rate levied is nil.

No Claims Bonus

A reduction in an insurance premium because the customer has a claim free record.

Nominal Value

The face value of something e.g. a Share issue

Nominee

An individual or company in whose name a security is registered to be owned, although the real (or beneficial) ownership is actually held by another party. Nominee companies are often used by share investors who for some reason wish their identities to remain undisclosed or who simply require another party to manage (or hold as custodian) their investments.

Non Contributory Pension

An occupational pension where the employee does not make any type of contribution. It is entirely funded by the employer.

Normal Retirement Date

Refers to the date when benefits can normally be taken from a pension scheme, as defined in the rules of the plan.

Not Contracted Out

Someone who has not contracted out of State Second Pension.

O

OBSR Fund Ratings are determined on the premise that the fund selection process should, whilst taking past performance into consideration, ascribe greater weight to identifying the factors which will affect future performance. This process demands a much stronger emphasis on a qualitative examination of funds. Ratings awarded are AAA, AA or A.

There are several key factors which lead to the final OBSR Rating determination. These are:

• Strength of investment process and length of time it has been in place

• Continuity of investment personnel

• Investment style that has proven durable over time

• Clearly defined investment objectives

• Strong and consistent past performance record

• Favourable risk adjusted returns

The OBSR Ratings are determined following in-depth qualitative and quantitative analysis with the emphasis more focused towards qualitative appraisals.

Occupational Pension Scheme

A pension scheme provided by an employer for its employees. Occupational pension schemes are mainly "defined benefit" or "defined contribution".

Off Balance Sheet

Referring to financial commitments or liabilities that do not generally appear in a company’s balance sheet (e.g. operating leases or derivative contracts).

Offer

Offer To Bid

Compares the original purchase cost or offer price –usually of a Unit Trust –with its bid price, the price you receive if you sell.

Offer To Offer

Compares the original purchase cost or offer price – usually of a Unit Trust – with its current offer price.

Off Market

Relating to a transaction which occurs outside a formal market – e.g. transactions in unlisted securities or transactions involving listed shares which were not executed on a stock exchange. Off market transactions are conducted through negotiation rather than an "auction" system.

Offshore

Basically, anywhere out of the country not within the authority of the Inland Revenue.

Offshore Sector

Ombudsman

OPAs

Open Ended Investment Company (OEIC)

OEICs have been familiar in continental Europe and Offshore for some time. They are now permitted in the United Kingdom and a number of unit trusts have been converted into OEICs.

Basically, the OEIC is an investment company where shares can be created or cancelled to match demand, in a way similar to the units of a unit trust. The principal difference lies in the fact that there is a "single price" to which is added the initial charge for purchase.

Opening Price

The price at which a security commences trading at the opening of a trading day.

Open Market Option

An option to move the value of your pension fund at retirement to an insurance company to purchase a pension income known as an Annuity. Normally used to gain a higher annuity rate.

Optimisation

A mathematical process which creates a compromise between conflicting objectives (e.g. between maximising return and minimising risk). An optimisation program will identify the asset mix which is likely to give the highest return for a given risk level, or alternatively, the lowest risk portfolio to achieve a desired return. See also Portfolio Optimisation.

Option

An agreement which conveys the right to the holder to buy (receive) or sell (deliver) a specific security at a stipulated price and within a stated period of time. If the option is not exercised during that time, the money paid for it (but no more than that amount) is forfeited. See also Call Option.

Ordinary Residence

For the purposes of taxation an individual may be ordinarily resident in the UK although he or she is not physically resident in a particular tax year .The term ‘ordinary residence ‘is broadly equivalent to habitual residence. If an individual is a resident in the UK year after year, he or she is ordinarily resident here and liable for UK tax.

Ordinary Shares

Securities which represent an ownership interest in a company. If the company has also issued preference shares, both have ownership rights. The preference shareholder normally is limited to a fixed dividend, but has prior claim on dividends and, in the event of liquidation, assets. Ordinary shareholders assume the greater risk, but generally exercise the greater control and may gain the greater reward in the form of dividends and capital appreciation. If the company is wound up, the ordinary shareholders generally rank behind secured creditors, including debenture holders, in the liquidation process.

Outperformance

Achievement of a higher investment return than a benchmark or other measure against which that return is being compared. For example an equity fund would be said to have outperformed the index if the fund achieved a 5% return against a 3% return by the index over the same period (As opposed to Underperformance).

Overfunding

Where a pension arrangement has assets which exceed those required to meet its liabilities.

Overweight

Having a greater exposure to a particular sector or stock in an investment portfolio compared with a neutral or benchmark position (As opposed to Underweight).

P

Paid-up Benefits

A preserved benefit which is secured for an individual member of a pension scheme or the policyholder of a life assurance policy where premiums have ceased to be payable in respect of that member.

Passive Management

An investment approach which aims to mirror or ‘track’ the performance of a financial index. This is normally done by either investing in the exact constituents of an index or by taking a representative ‘sample’ of that index. The managers of the fund have lower expenses than active fund managers, and the charges to investors are therefore lower.

Penny Shares

Term used to describe Shares with a low value, usually under £1 per Share; very often high-risk Shares.

Pension

A regular income paid to a person after they have retired. Also used to describe a plan or scheme that is set up to provide a pension or other retirement benefits.

Pension Annuity

An insurance policy that pays out an income during retirement. The Annuity is bought with savings made before retirement e.g, from a Personal Pension or Occupational Pension Scheme. This can also be known as a Compulsory Purchase Annuity.

Pension Fund

General term used to describe the investment fund built up in a pension plan and used at retirement to purchase an Annuity to provide a continuing income.

Pension Transfers

Refers to the current value of a pension plan that can be transferred from one approved scheme to another approved scheme. The value is transferred direct from one employer or pension provider to another.

Pensionable Earnings

Earnings on which benefits and contributions in a pension scheme are calculated.

Pensionable Service

Period of service with a company that is used in the calculation of pension benefits

Pensioneer Trustee

An independent professionally recognised trustee.

Percentile

A statistical measure representing the ranking of a particular figure or outcome on a scale comprising 100 equal groups. See also Quartile.

Performance Management

Performance to date

The performance of an investment over a given period of time calculated to the most recent update date.

Performance Since Launch

Persistency

Personal Allowance

The level of income above which income tax starts to be levied.

Personal Equity Plan (PEP)

Personal Pension Plan

An arrangement, often in the form of a policy from a life insurance company, under which individuals can make contributions without the need for employer contribution.

Policy

A document giving all of the details of the agreement between the insured and the insurer.

Policy Conditions

The ‘small print ‘of a policy, which sets out the rights and responsibilities of the parties involved.

Policy Fee

Generally an administration fee usually charged monthly or annually.

Policy Holder

Generally taken to mean the owner of the policy.

Political Risk

The uncertainty in return on a foreign investment due to the possibility that the foreign government might take actions which are detrimental to the investor’s interests.

Pooled Investments

Any form of investment in which a number of individuals place their money with a professional manager to manage the total fund on their behalf and produce a return to them individually. Also known as Collective Investment.

Portfolio

The collection of investment holdings of a particular investor usually with reference to its composition – i.e. the mix of different classes of securities, such as bonds, property, shares and cash, or if in a single asset class, the mix of different sectors and stocks.

Portfolio Construction

The process of identifying which asset classes to invest in, and in what proportions.

Portfolio Manager

A person or organisation engaged to manage investment portfolios and make investment decisions on behalf of others. Also known as an Investment Manager.

Portfolio Optimisation

The process of selecting an investment portfolio that minimises risk for a given level of return, taking account of a) expected return; b) variances of expected return; and c) covariance of return with every other security under consideration.

Position

The total of an option trader’s open contracts in a particular underlying security;A market commitment. For example, a purchaser of a futures contract has a long position, while a seller of a futures contract has a short position.

Positive Periods

Potentially Exempt Transfer

Gifts on which Inheritance Tax will not be payable unless the donor dies within seven years.

Pound Cost Averaging

The term used to describe the effect of paying a fixed regular amount into a unitised investment fund where the value of units fluctuates. The amount will purchase more units when prices are low and vice versa. Over the longer-term, the average cost per unit is likely to be lower than the average unit price over the period.

Power of Attorney

Preference Shares

Shares which rank before ordinary shares in the event of liquidation of the issuing company and usually receiving a fixed rate of return on the unfranked investment. See also Ordinary Shares.

Premium

The amount of money an individual pays into a saving or investment product, as either a lump sum or a regular payment.

Premium Frequency

How often the premium is paid, e.g. monthly or annually.

Preserved Benefits

When leaving employment after at least two years as a member of an Occupational Pension Scheme, pension benefits accrued to date must be preserved within the scheme or transferred to another pension scheme. If less than two years ‘service, members of the pension scheme can take a refund of any personal contributions, less certain deductions. Since April 2006, the two year period has been reduced, subject to the member’s consent.

Price-Earnings Ratio (PR)

A stock’s market price divided by its current or estimated future earnings per share; a fundamental measure of the attractiveness of a particular security versus all other securities as determined by the investing public. The lower the ratio relative to the average of the stockmarket, the lower the (market’s) profit growth expectations. Also called Earnings Multiple.

Primary Market

The market in which securities are sold at the time they are first issued. (As opposed to Secondary Market).

Private Sector

The part of the economy owned/operated by corporations and individuals outside the public sector. Split by economists into households and business.

Privatisation

The alteration of the legal and management structure of a Government trading body (e.g. a statutory authority) to permit private equity or ownership.

Profit and Loss Account

A financial statement showing the earnings and expenses of a company over a given reporting period (as distinct from a balance sheet, which shows the company’s assets and liabilities at a set point in time).

Program Trading

Property

In the finance industry, the term refers to real estate including land and buildings that can be bought, sold or leased.

Protected Rights

If you're employed you can normally contract out of State Second Pension. One option is to contract out using a Personal Pension, Stakeholder Pension or a Money Purchase Occupational Scheme. This means that you give up your right to benefit from State Second Pension for the period you are contracted out. As a result, your State Second Pension benefit will be reduced. In return, the Inland Revenue sends your selected pension provider a rebate of part of your own and your employer's National Insurance contributions. These are invested in your plan and the fund that this produces is called Protected Rights. There are special rules about the benefits you can get from Protected Rights and when they can be taken e.g. you cannot usually take your Protected Rights benefits before age 60.

Protection Overlay

Proxy

A written authorisation given by a shareholder to someone else to vote his or her shares at a shareholder’s meeting. Fund management agreements often delegate the authority to the investment manager to exercise proxy votes on behalf of the client. See also Corporate Governance.

Public Sector

The part of the economy which is made up of Government enterprises and activities. The public sector includes public service departments, essential services such as health, education, transport and defence. See also Private Sector.

Purchased Life Annuity

An Annuity bought with private savings (not pension savings). Part of the Annuity is deemed to be interest paid on the capital and is taxed. The other part is considered to be a return of capital and so escapes tax.

Put Option

An option giving its purchaser the right, without the obligation, to sell an asset at a specified price (the exercise price) at any time between the purchase of the option and its expiry date. See also Call Option.

Q

A Qualifying policy is a policy which pays out its proceeds free from personal taxation. In order to qualify it needs to adhere to the following Qualifying rules.

• The premiums must be payable for ten years or 75%of the term whichever is the shorter.

• The premiums must be paid regularly on an annual or more frequent basis such as monthly.

• The sum assured must be at least 75%of the total premiums payable over the life of the policy.

• The plan must be certified by the Inland Revenue.

Quantitative Management

An approach to investment management which seeks to use statistical or numerical methods to create efficient portfolios, with the optimum risk/return trade-off. Quantitative managers generally attempt to add value by exploiting pricing anomalies, or by providing particular levels of risk control, rather than by subjective forecasting of market behaviour.

Quartile

The division of a spread of values divided into four. A statistical division generally used in financial services to denote performance of, say, a particular type of fund. Comparisons of similar funds are shown in a league table, which is divided into four quarters or quartiles.

R

Rally

A brisk rise following a decline in the general price level of the market or an individual share.

Range

The difference between the highest and lowest prices recorded during a given trading session, week, month, year etc.

Rate of Return

The yield earned in relation to a capital amount invested.

Real Estate

Property in land, building or housing, as distinct from personal property (e.g. cars); also known as physical property to distinguish itself from Property Trusts.

Real Interest Rate

The nominal interest rate less the prevailing rate of inflation.

Realise

To sell an asset (usually when it appears to have appreciated to the maximum extent that can be reasonably expected).

Real Return

An inflation-adjusted return.

Rebate

The return of a proportion of a payment which effectively reduces the total outlay or obligation.

Rebate-only Personal Pension

A Personal Pension which is made up solely of the National Insurance rebates, payable by the Inland Revenue, where the member has elected to contract out of SERPS or the State Second Pension.

Redemption Fee

A fee charged for the redemption (i.e. withdrawal/cashing in) of units in a unit trust. Also known as Back-end Load.

Redemption Penalties

Redemption Yield

Reduced Allocation

Method of recouping initial expenses when setting up a unit-linked policy, whereby only a proportion of the investment is allocated to the policy for the first few years.

Reduction In Yield

The amount by which an insurance company ‘s charges can be expected to reduce the investment return on a policy.

Reflation

Restoration of deflated prices to a desirable level. When Governments reflate, additional money is printed, adding to the supply of money in circulation.

Reserves

The proportion of a company’s profit not distributed to shareholders as dividends; An account kept aside by the trustees of a pension fund to cover declines in asset values or investment returns.

Retail Price Index (known as RPI)

A monthly indication of the average price changes to a particular ‘basket’ of consumer goods, and used as a general indicator of price inflation.

Retained Benefits

Pension benefits earned in previous employment that are taken into account when determining Inland Revenue limits for a member of an Occupational Pension Scheme.

Retirement Annuity

Retirement Date

This is the date that you choose to retire at.

Return

The amount of money in income and capital growth received annually from an investment, usually expressed as a percentage.

Risk

In its simplest sense, risk is the variability of returns. Investments with greater inherent risk must provide higher expected yields if investors are to be attracted to them. Risk can take any forms, but a major one is valuation risk – paying too much for an asset. See also Currency Risk, Exchange Rate Risk, Market Risk, Political Risk, Volatility.

Risk Evaluator

See Fund Risk Number.

Risk-Free Asset

An investment with no chance of default, and a known or certain rate of return.

Risk Management

The monitoring and controlling of various risk factors in an investment portfolio with the aim of minimising volatility of investment returns.

Risk Premium

The extra yield over the risk free rate demanded by investors to compensate them for holding a riskier asset. This is an extremely important concept in relation to setting a long-term asset mix. See Equity Risk Premium.

Risk is a measure of the variability of return. Return, in financial terms, represents the profit - in the form of income and capital appreciation on an investment. The Risk / Return trade off is where an investor is willing to accept greater risk in order to pursue greater returns.

Roll-over Relief

A tax concession, which allows investors and businesses to defer the payment of Capital Gains Tax. For example, if proceeds from the sale of a fixed asset are reinvested, Capital Gains Taxis not payable until the new asset is sold.

Roll-up Funds

An Offshore Investment fund that does not distribute its dividends. An important definition for classification and taxation purposes.

Running Yield

R-Squared

The percentage of a portfolio’s total return explained by market movements.

S

S & P 500

A United States stockmarket index, maintained by Standard & Poors.

Salary Sacrifice

A tax-efficient method of increasing the money paid into a pension scheme by giving up existing salary or proposed salary increases, so that the sum foregone can be used as an additional company contribution into a pension scheme.

Satellite Funds

Scattergram

A graph illustrating the annualised risk and return performance of a fund or investment manager for a specific period (greater than one year). Risk is measured by standard deviation on the horizontal axis with return on the vertical axis. A point of risk and return for each fund or investment manager is plotted, creating a number of scattered points.

Screening

Examination of various securities, usually through computer models, to identify certain predetermined factors such as valuations, earnings, liquidity, etc, with a view to the inclusion of those securities in an investment portfolio.

Secondary Market

Any market in which existing securities are traded (as distinct from the primary market, in which securities are first issued). The Stock Exchange is the secondary market for share trading.

Section 226 (Retirement Annuity)

Prior to 1 July 1988, people not in pensionable employment (employment where no pension scheme exists) or people who were self-employed were able to qualify for tax relief for contributions made to a pension scheme known as a Retirement Annuity under Section 226 of the Income and Corporation Taxes Act 1970. This was the forerunner to the Personal Pension Scheme.

Sector

A sector is a grouping of funds with a similar investment objective and make up.

Sector Averages

Sector Index

Sector Risk Number

Section 32

Security

In relation to financial markets, the paper right to a (generally tradeable) asset. In this context the term includes Bills of Exchange, bonds, share certificates or any other interest-bearing paper traded on financial markets; An asset pledged to ensure the repayment of a financial obligation (e.g. loan), and forfeited in the event of a default on that obligation.

Securities

A term used to describe stocks and shares.

Segregated Fund

Pension scheme investments managed along side, but separately from, other investments under control of a particular manager

Seller's Market

A condition of the market in which there is a scarcity of goods available, and hence, sellers can obtain better conditions for sale or higher prices. (As opposed to Buyer's Market).

Selling (Bid) Price

The price at which you can sell Shares or units in a Unit Trust or units in a life policy.

SERPS

Part of an employee’s National Insurance contributions goes into SERPS (State Earnings-Related Pension Scheme), which is paid on top of the Basic State Pension on retirement. The SERPS pension, payable when you reach State pension age, depends on your earnings while you were in employment and the National Insurance contributions paid. SERPS is paid in addition to the Basic State Pension. This was replaced by the State Second Pension in April 2002

Settlement

In relation to share trading, an arrangement between brokerage houses for the payment or receipt of cash or securities. It represents the final consummation of a securities transaction and is handled through a clearing house.

Settlement Date

The date on which the final consummation of a securities transaction takes place and payment is made.

Settlement Risk

Share

The ownership of part of a company; a contract between the issuing company and the owner of the share which gives the latter an interest in the management of the corporation, the right to participate in profits and, if the company is dissolved, a claim upon assets remaining when all debts have been paid. See also Equity.

Share Capital

The money paid (subscribed) for ordinary and preference Shares in a limited company. Authorised share capital means the total amount of Shares available to be issued. Issued share capital relates to the total amount of Shares actually subscribed for.

Share Certificate

A piece of paper representing legal evidence of ownership of a stipulated number of shares in a company. Also known as Scrip.

Share Exchange

Owners of Unit Trusts may use Shares they already own to make an investment without having to sell them first. This saves dealing charges.

Share Holder

The owner of one or more issued shares of a company who is normally entitled to: a proportionate share of the issuing company’s undivided assets; dividends when declared by the directors; and the right of proportionate voting power.

Share Option

An offer by a company, usually to its employees and directors, to buy its Shares at a given price, before a specified date. A number of approved share option schemes offer tax-free capital growth.

Share Price Index

An index measuring movements in the price of shares, but not of their dividends (as opposed to an Accumulation Index, which measures movements in both price and dividend income).

Share Register

A register recording all of a company’s shareholders and the number of shares they each hold.

Shares

Sold by a company to raise money. Shares give the owners an interest in the company and a right to share in the profits

Sharpe Ratio

A statistical measure which attempts to show the performance of a portfolio’s return in risk adjusted terms. It is calculated by dividing the portfolio’s excess return over the risk-free rate by the risk (i.e. standard deviation) of portfolio returns. The higher the Sharpe Ratio, the better the portfolio’s return in risk adjusted terms. A Sharpe Ratio higher than one can be considered to be very good, while a ratio below 0.1 shows that the portfolio has been poorly rewarded for the risk undertaken.

Short Position

An excess of sales over purchases of a relevant commodity, currency or investment instrument (As opposed to Long Position).

Shorts

Bonds or Gilts that have a redemption date within five years. Some institutions use seven years as the cut-off date.

Short Selling

The sale of a security that is not yet owned, in the expectation that its price will fall so that it can be bought back at a later date.

Single Life Pension

A pension that is paid for the lifetime of the policy holder only.

Single Premium

A one off payment into an insurance policy or pension.

Single Price

Single Pricing

Smaller Companies

Generally, companies with a market capitalisation of less than US$1 billion or the bottom 25% of the market, although definitions differ.

Small Gifts Exemption

An annual Inheritance Tax (IHT) allowance, enabling a donor to give up to £250 per year to any number of separate individuals (donees).

Soft Dollars

Specialist Manager

An investment manager which confines its investment activity to specific asset classes (e.g. equities, fixed interest, property, overseas shares, etc.) instead of (or as well as) balanced funds. See also Balanced Manager.

Specific Risk

Uncertainty in the return of a share arising from factors that are specific to the company concerned. It is unrelated, or, at most, distantly related, to events that impact on other comparable firms or the market as a whole. Unlike market risk, specific risk can be diversified away.

Spread

In relation to share, bond and currency markets, the difference between the bid price and the ask (offering) price, incorporating both an estimate of demand and potential profit for the seller; In relation to unit trusts, the difference between the allocation of redemption price of units, as a result of transaction costs incurred in buying and selling the underlying securities which make up the value of the trust. In relation to option markets, the holding of a long position and an offsetting short position, usually in contracts with the same underlying security or asset.

Stag

An investor in the share market who aims for quick gains by subscribing to new share issues and then selling once the shares commence trading on the exchange.

Stakeholder Pension

Stakeholder pensions were introduced from 6 April 2001. The Government has laid down minimum standards to ensure that all Stakeholder pensions meet the same basic criteria for payments, costs and terms.

Stamp Duty

A tax on the purchase of shares – at 0.5% of the value – and on the purchase of property. For shares the tax is a flat rate.

Standard Deviation

A statistical measure of the dispersion of a set of numbers around a central point. If the standard deviation is small, the frequency of distribution is concentrated within a narrow range of values. For a 'normal' distribution, about two thirds of the observations will fall within one standard deviation of the mean. Standard deviation is a commonly used measure of risk because the higher the standard deviation the higher the uncertainty of the return. As standard deviation measures the volatility of investment returns, it is an important measure of risk. Also known as Standard Error.

State Pensionable Age

Fixed retirement ages for men and women, currently 65 and 60 respectively. To be equalised to 65 for men and women, by April 2020 (with ten years ‘phasing-in from 2010). This is the age at which State benefits may be taken as pension income.

State Pension Schemes

Stock

A generic term for equities (shares) and, less frequently, bonds. See also Security.

Stock Broker

A professional person who buys and sells securities on behalf of others in return for a commission (or brokerage).

Stock Exchange

A market where stocks and shares are bought and sold.

Stock Market

A place where Shares or other securities are bought and sold e.g. the London Stock Exchange.

Stockbrokers

Agents who buy and sell stocks and shares for customers.

Stocks and Shares

A stock generally refers to fixed interest securities, usually issued in denominations of £100.Share is sold by a company to raise money. Shares give the owners an interest in the company and a right to a share in the profits.

Stock Selection

The selection of an individual security within an asset class. For example, stock selection in relation to equity investments is made after analysing the financial standing, future earnings prospects and valuation of the shares of the company concerned. Along with asset allocation, stock selection is a key way in which investment managers add value.

Strategic Asset Allocation

The composition of the asset mix within a portfolio, constructed with the objective of meeting the long-term views of relative performance of the various asset classes. Usually a benchmark is derived in this fashion. See also Asset Allocation, Tactical Asset Allocation.

Subscription

An agreement to purchase a certain offering, e.g. a certain number of shares for a stipulated price. Such an offer is not binding unless accepted by the properly authorised representatives of the issuer. Also used as a term for payments into Skandia MultiFUND products.

Subsidiary

A company which is wholly or partly owned by another company but which (unlike a branch office) is still a distinct legal entity responsible for its own tax, regulatory compliance, etc.

Sum Assured

The guaranteed amount paid on death or maturity under a life assurance policy.

Sum Insured

Superannuation

A means of setting aside funds during working life for use as retirement income, under a regulatory system which provides certain taxation incentives and prudential controls for the benefit of contributors. See also Pension.

Surrender Value

The amount of money that will be paid to a policy holder if they discontinue a policy before it matures. The benefits the customer usually receives are reduced because of the effects of the charges.

Switching

Transferring sums of money from one unitised fund to another. This is usually done on a bid-to-bid basis to avoid ‘new money ‘ charges when buying units at the offer price.

Switching Facility

The ability to transfer units between two funds or components of a unit trust or life policy.

Systematic Risk

One of the components into which the risk of an asset,as defined by its price volatility, is usually divided - the other is specific risk. The systematic risk is the portion of the risk that relates to the movements in the underlying market of which this asset forms part. Systematic risk is normally measured in terms of beta. It should not be confused with systemic risk.

T

Tactical Asset Allocation

A process by which the asset allocation of a fund is changed on a short-term basis to take advantage of perceived differences in relative values of the various asset classes. A variation of asset allocation around a benchmark. See also Strategic Asset Allocation.

Tactical Asset Allocation Overlay

Takeover

The acquisition of shares by one company in another so as to gain a controlling interest.

Taper Relief

Taper relief was introduced into the UK taxation regime with effect from 6 April 1998.Its purpose is similar to indexation, in that it aims to reduce the amount of Capital Gains Tax you have to pay when you sell Shares, to account for the effect of inflation.

Tax Credit

Tax Exempt

Referring to income which is not liable for tax in the hands of the recipient. Referring to a fund which does not incur tax on its income, by virtue of its beneficiaries being a specialised class of persons, e.g. a charitable organisation.

Tax Relief

Amounts which you can deduct from your annual income to reduce the amount on which you have to pay tax. For instance, if your income before deduction of reliefs is £20,000, and you made pension contributions in the year of £1,000, you could deduct £1,000 from £20,000 to produce a total income for tax purposes of £19,000. That is because pension contributions are payments on which the Inland Revenue allows you to get relief.

Tax Year

A period of time used for tax calculations. It starts on 6 April each year and finishes on 5 April the following year.

Technical Analysis

An approach to the analysis of stock and futures and their future trends which examines the technical factors of market activity, often represented by charting patterns, as contrasted with fundamental analysis. Technical analysts normally examine patterns of price change, rates of change, and changes in volume of trading and open interest, in the hope of being able to predict and profit from future trends. Some investment professionals are sceptical of the predictive ability of technical analysis, but most managers keep an eye on the charts anyway.

Term Assurance

A simple life assurance policy that pays out on death of the customer during the time period specified by the policy.

Term Deposit

A deposit with a financial institution for a fixed period and a rate of interest which applies for the duration of the deposit.

Testate

A person who dies having made a will is described as ‘Testate’

Thematic Manager

An investment manager who utilises macroeconomic research and expertise to develop themes to influence its asset allocation decisions. The aim of thematic managers is to identify those factors in the market which will have an influence on companies’ profitability and on the market’s perception of relative values.

Tied Agent

A sales person who sells the policies of only one insurance company. Some sales people are tied to several companies –this is known as a multi-tie.

Tiger Economies

A term for those Asian economies characterised by rapid growth and industrialisation since World War II. These countries include Taiwan, Singapore, South Korea and Hong Kong. See also Emerging Markets.

Tilt

The adoption of a particular view on a sector by over-weighting a portfolio in the direction of that sector, (e.g. a portfolio with a high level of resource shares and low level of industrials would be described as having a resource tilt). Such a technique is commonly employed by index fund managers when clients indicate a desire for above-index returns.

Time Horizon

The period of time over which an investment objective is to be realised. Time horizon is a critical factor for all investors in determining the types of investments they should make or, at least, the amount of risk they are prepared to carry. The investments made to provide for future retirement income, for instance, would almost always be different from those for short-term purposes.

Timing

The art of deciding upon the exact moment to buy or to sell.

Top Down Analysis

A country’s economy is considered before deciding which industry in which to invest. Economic conditions determine which industries or sectors will return well and then attractive stocks are bought within those industries.

Topix

Abbreviation for Tokyo Price Index. A Japanese share price index measuring share prices of selected large companies listed on the Tokyo Stock Exchange.

Top Slicing

A method of calculating Income Tax liability on a chargeable gain from certain packaged products.

Total Return

The aggregate increase or decrease in the value of a portfolio resulting from the net appreciation (or depreciation) of the principal of the fund, plus or minus the net income (or loss) experienced by that fund during the period.

Tracker Funds

Aim to mirror or 'track' the performance of any of a number of worldwide stock market indices, such as the FTSE 100 Index-see passive management.

Transfer Payment

Payment made from a pension scheme to another pension scheme, in lieu of benefits which have accrued to the member, to enable the receiving scheme to provide alternative benefits. The amount transferred is known as the transfer value.

Tracking Error

The degree of proximity with which an actual portfolio follows a representative market index. Technically the tracking error is represented by the standard deviation of the differences in return between the portfolio and the index. Tracking error measures the likelihood (based on historical data) of actual returns differing from index returns.

Trader

A person who actively buys and sells securities for his or her own account, usually with relatively short time horizons.

Transaction Notes

Treasuries

Treasury Bills

Treasury Bonds

Treasury Notes

Trend

A persistent and pervasive direction, upwards or downwards, of commodities, prices, earnings, etc. over a period of time.

An individual, group of people or independent institution responsible for the management of the trust as defined by the trust deed. The trustees have the power to veto any investment which they feel does not adhere to the trust deed.

A person or company that has legal responsibility for financial aspects (receipts, disbursements and investment) of funds; A trust company which acts in a capacity of trust as a fiduciary and to whom assets have been conveyed for the benefit of another party. The Trustee in this case oversees the behaviour of the manager in relation to the operation of a unit trust.

Turnover

U

UK Resident (for tax purposes)

If you are physically present in the UK for six months in a tax year then you will be resident in the UK and taxable on your income and capital gains.

If you are in the UK for less than six months you may still be taxable. If you are abroad only temporarily, or if you spend an average of three months a year in the UK for four years, you will be treated as ordinarily resident and therefore taxable.

If you regard the UK as your home you will be classed as UK domiciled. You can be a resident abroad but, if you consider the UK to be 'home' you will still be domiciled in the UK. If you die, all of your assets anywhere in the world will be chargeable to Inheritance Tax (IHT). If you are not domiciled in the UK, only your UK assets will be chargeable to IHT.

Unbundled

Referring to the structuring of a product or service where the individual components involved in the management of that product are split out with separate fees usually applying. For example, an unbundled pension arrangement might involve separation of investment management, trusteeship and insurance arrangements among different parties. (As opposed to Bundled).

Under Funded

Generally refers to the valuation of a Final Salary Occupational Pension Fund where the actuary perceives that there are insufficient funds to support liabilities within the investment review period.

Underlying Inflation

A calculated measure that takes the headline inflation rate and excludes certain volatile items or series that are affected by factors other than general economic conditions (e.g. government taxes, or the effect of weather on fruit and vegetable prices). The resulting rate is based on only those items directly related to the economy.

Underperformance

Achievement of a lower investment return than a benchmark or other measure (e.g. competitor portfolios) against which that return is being compared (As opposed to Outperformance).

Undervalued

Referring to a security or currency which trades below what is perceived to be its proper market value, taking account of statistical or fundamental research or other relevant information.

Underweight

Having a lesser exposure to a particular sector in an investment portfolio, compared with a neutral or benchmark position. (As opposed to Overweight).

Underwriter

An individual who decides whether or not to accept a risk and calculates the premium to be paid.

Underwriting

There are two definitions:

1. Financial organisation, usually an investment bank, taking up Shares from an Initial Public Offering (IPO), not purchased by the public, for commission.
2. Review and analysis of relevant factors affecting an insurance proposal by an Underwriter.

Unearned Income

Income received from sources such as dividends from Shares and Bonds-income, which has not been earned by working.

Unit Linked

Where the value of the saver's fund is linked to the value of the units of the Trust or Life Company Fund it is invested in.

Unit Trust

An investment or company fund which pools together customers' money allowing them to increase the types of shares they can invest in, therefore improving the risk. Many unit trusts have now become OEIC's, see Open Ended Investment Companies in this glossary.

Unitised With Profits

Contracts where premiums are invested in units, either in the with-profits fund or in the linked funds or a mixture of both.

Units

When investing in a unit-linked contract, the individual's contribution is used to buy units of equal value. These units will fall or rise in line with the underlying investments.

Universe

A term sometimes used to describe the total number of operators or competitors in a particular field, or the number of available stocks from which a portfolio is selected. Investment manager performance surveys are also referred to in this way.

Unlisted

Referring to a company and/or shares that are not available for purchase or sale through the stockmarket.

Unlisted Securities

Securities which are not listed on an organised stock exchange.

Utility

A term used to describe the statutory authorities responsible for providing services to the community such as water, gas and electricity.

V

Value Added Tax

A tax on individual goods and/or services, which is added on to the retail price of those goods or services.

Valuation

The value or worth of a portfolio of investments or life/pension policies recorded on a statement. Not necessarily the amount available if cashed-in.

Value Date

Value Investor

One who seeks to buy shares when they are under priced and to take profits when they appear over valued. The Price/Earnings Ratio is a key valuation measure.

Value Stocks

Shares in companies that are considered to be good value. Usually they are trading at a price that is low either historically or relative to its peer group.

Variable Rate Mortgage

A mortgage where the interest rate can move up and down. It is usually based on base rate.

Variance

A measure of dispersion of returns on investments based on deviations from the average or mean value.

Venture Capital

Capital which is subject to more than a normal degree of risk, usually associated with a new business or venture and particularly in relation to new technology projects. Also called Risk Capital. See also Development Capital.

Volatility (portfolio or fund)

Volatility is a statistical method that measures how much a series of values move up and down around its average. The higher the volatility number, the less consistent the historical performance has been.

Voting Right

A right enjoyed by a shareholder to participate in the affairs of the company by voting at its annual meeting or other policy making forum. See also Corporate Governance, Proxy.

W

Waiver of Premium

An optional feature on some life policies where the insurance company will pay the premiums if the policyholder becomes ill.

Weighting

The relative proportion of each of a group of securities or asset classes within a single investment portfolio. See also Overweight, Underweight.

Whole Life Policy

Life assurance that a customer pays throughout the whole of their life and that pays out whenever they die.

Withholding Tax

The tax payable on payments such as dividends, interest and debt repayments, sent to foreign entities.

With Profits Bond

A single premium bond issued by a Life Company where a lump sum is paid into a with profits fund made up of shares, property, cash, fixed interest securities. With-profits bonds use a smoothing device to protect the investor from extreme fluctuations in market conditions.

With Profits Policy

A policy issued by a Life Company where premiums are paid into a with profits fund made up of shares, property, cash, fixed interest securities. With-profits bonds use a smoothing device to protect the investor from extreme fluctuations in market conditions.

Wrap Account

Wrap Service

X

Y

Yield

A measure of the income received from an investment compared to the price paid for the investment. Normally expressed as a percentage.

Yield Curve

A visual representation of the term structure of interest rates. It shows the relationship between bond yields and maturity lengths. A normal or positive yield curve signifies higher interest rates for long-term investment, while a negative or downward curve indicates higher short-term rates.

Yield to Maturity

The yield provided by a bond which is held to its maturity date, taking account of both interest payments and capital gains or losses.

Z

Zero Coupon Bonds

Discounted bonds which are issued with no coupon, i.e. there is no periodic income payment, and the yield to the bondholder is derived from the capital value of the bond at its maturity.

Zero Dividend Preference Share

A Share with a predetermined growth rate, but which does not pay dividends.