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| The
financial industry thrives on jargon, much of which we read on a
regular basis. But what do some of the most commonly used terms
really mean? Follow our guide and all will be revealed.
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Accumulation
units
One type of unit trust unit, which automatically reinvests
income.
Asset allocation
The practice of spreading money within a portfolio across
different investments, including equities, bonds and cash
deposits, and/or across different geographical markets.
Bid/offer spread
The difference at any one time between the buying price of
a unit trust (the offer price) and the selling price (the
bid price) of a unit trust. The bid price may typically be
5% lower than the offer price.
Collective investment
An investment fund, such as a unit trust, investment trust
or OEIC, that pools together the money of thousands of investors
and invests it on their behalf.
Convertible
A corporate bond or preference share that pays fixed income
but which can be converted into an ordinary share.
Coupon
The income, expressed as a rate of interest, payable on fixed
interest securities.
Fixed interest securities
Securities, such as gilts and corporate bonds, which are issued
by governments, companies and other institutions. They pay
out a set income each year.
Gilt
A fixed interest security issued by the British Government.
Gross
Refers to the value of income, dividends etc. before income
tax is deducted. |
Gross
redemption yield
The annualised return on a fixed interest security, taking
into account interest and any capital loss or gain that will
be made if you hold the security to maturity.
Index-linked bonds
Fixed interest securities whose income is linked to the Retail
Prices Index so that it keeps pace with inflation.
Investment trust
A limited company, which makes its money by investing in the
shares of other companies on behalf of its shareholders.
Open-ended investment company
(OEIC)
A collective fund similar to a unit trust but which has a
single price and issues shares rather than units.
Real return
What you make on your investments once the eroding effect
of inflation has been taken into account.
Split capital investment trust
A specialist investment trust that issues different classes
of shares to meet different investment objectives, for example
income or capital growth.
Unit trust
An open-ended collective investment fund divided into units
each representing an identical fraction of the total underlying
investments. The investment fund is set up under a trust deed.
The investor is effectively the beneficiary under the trust.
Yield
The income paid out on an investment, expressed as a percentage
of its capital value.
Zero-dividend preference share
A type of share issued by a split capital investment trust,
which pays no income but will pay out a fixed capital sum
at maturity, if the assets of the investment trust are sufficient. |
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