Glossary
Accumulation Units: The units of an investment (normally a unit trust or OEIC) where income generated by the investment is re-invested rather than paid out.
Annual Management Charge: A fee charged annually by investment managers to cover the cost of running the fund. Usually this is between 1-1.5% of the value of the fund per annum and it is deducted from the fund gradually through the year.
Beta: This is an indication or measure of volatility. This can apply either to an individual share or an investment fund though the Beta only indicates how volatile the investment has been in the past, not how it will behave in the future. In general terms, the higher the ‘Beta’ of the share or fund, the greater the volatility of the investment.
Bid-Offer Spread: The Bid price is the price at which you can sell your units. The Offer price is the price at which you can buy units. The Bid-Offer spread is the difference between these prices. This will vary depending on factors such as current fund value and the level of liquidity in the fund. The Bid-Offer spread may affect the value you get back from the investment if you make a withdrawal and so should be taken into account.
Blue Chip: A term given to shares of a Company that is considered to be financially sound. Many of the shares making up the FTSE 100 are deemed to be blue chips and some investment managers run funds that specifically target blue chip shares as their investment strategy.
Capital Gains Tax: When you have bought a share or an investment fund outside of a PEP or ISA wrapper, and later sold it at a profit. If the gain you made is enough (perhaps when added to other gains you made in the same year) then you could go over your annual Capital Gains Tax (CGT) allowance and you may need to pay additional tax on the gain. If you have sold a share or an investment fund and lost money, this is a capital loss and you may be able to offset this against gains you have made.
Commission: Chartwell Direct and Investorcentre are paid commission by many of the companies that we deal with. We give up most of this commission to you in order to reduce the charges that you would normally pay. For more details of what commission we give up please go to our section on Discounts.
Corporate Bond: A corporate bond is a loan to a company. The investor agrees to loan money to the company in return for a fixed rate of interest and full repayment of the loan at the end of the term. Most investors do this by investing in a Corporate Bond Fund rather than holding loans directly with companies. The performance of Corporate Bonds is often influenced by interest rates. Generally when rates rise, the price of the bond falls and if interest rates are falling, bond prices rise. Government bonds (or gilts) work in the same way but are considered to be low risk and therefore tend to offer lower interest rates. Corporate Bonds offer rates that are in keeping with the levels of risk the investor is taking, so a Blue Chip company will offer a higher rate of interest than Gilts. The most risky type of Corporate Bonds are sometimes termed ‘High Yield’ bonds and they provide the highest interest rates.
Derivatives: These are not actual assets that are owned. Instead they are contracts that can be taken out allowing the owner to buy or sell an asset at a specific time in the future for a specific price. Options, Warrants and Futures are all types of Derivatives and are considered to be very high risk. Used in combination and with other assets they can provide diversification and can be used to protect losses on some assets, however the average investor can gain access to Derivatives by using a professionally managed structured product or similar investment vehicle.
Dilution Levy: OEICs sometimes apply this charge when further costs are incurred when buying or selling units. The purpose of it is to prevent existing clients from suffering costs incurred by those clients choosing to buy or sell units. The monies generated by the dilution levy will be placed back into the OEIC so that other investors are not disadvantaged by the additional costs.
Dividend: An amount paid out by a company to shareholders usually as cash but sometimes in terms of more shares. An amount is paid per share and the amount paid is usually related to the amount of profit made. If the shares are held in an investment fund, the amount paid is added together with the amounts paid on all the other assets in the fund and this forms the Dividend Yield of the fund. You can normally instruct the investment managers to either pay this to you as income or reinvest this back into your investment.
Equalisation: Unit trusts and OEICs hold a variety of shares, some of which may pay dividends at different times of the year. Most funds only pay out this income to investoris at specific times during the year and so it builds up in between payment dates. When a new investor buys into a fund part of the purchase is represented by these accumlated dividends. When the next payment date arrives, part of the payment received will be a sum equivalent to the built up dividends that were in the fund when it was bought. Although it represents the build up of dividends, the payment is regarded as capital being returned to the investor and is termed an equalisation payment.
Equities: This is another term for the share stock of a company (shares) that is often used when refering to the types of asset held within an investment portfolio or a managed fund.
Financial Services Authority (FSA): The regulating body of the financial services industry and of Chartwell. For more details please visit their website http://www.fsa.gov.uk/
Fund Sector: A category showing where a managed investment fund invests. This is usually indicated in terms of geography (e.g. Europe), industry (e.g. Technology), market capitalisation (e.g. mid-250), intended target holdings (e.g. UK Corporate Bonds) or specialist interest (e.g. Ethical).
Gilts: These are loans issued by the government when it wants to raise funds. They are like Corporate Bonds, but are termed Gilts as they are considered the safest type of loan you can buy. They pay a fixed rate of return (the coupon) for a fixed term and then repay your original investment back to you. Income is generally paid gross of tax.
Individual Savings Account (ISA): ISAs replaced PEPs in April 1999 and have now also replaced TESSAs. You may have a Maxi or a Mini ISA and UK residents get a new ISA allowance each year after 5th April that they may invest in. ISAs are effectively a ‘wrapper’ that sit around your investment assets and mean you don’t have to pay further tax on them. This is the case for capital gains tax, income tax, corporation tax (on qualifying corporate bond funds) and interest.
Initial Charges: Many investments have charges to cover the cost of setting up and running the invesment. The fund manager takes the charges out of the investment amount you pay them, however, you can usually reduce or eliminate the charges to be paid by investing through Chartwell Direct and Investor Centre. To find out more information about our discounts please visit the Literature Library
Investment Fund: A professionally managed collection of shares or other assets that investors can buy into by purchasing units that represent a proportion of the fund. The funds can be structured in a variety of ways, Chartwell Direct and Investor Centre can give you access to both Unit Trusts and OEICs (Open Ended Investment Company).
Liquidity: How ‘liquid’ an asset is relates to how easy it is to sell and get your cash back. Blue Chip shares are very liquid as they can be easily bought or sold. Property is less liquid as it takes more time and cost to buy and sell this asset. When you purchase investments that are less liquid you must ensure that you are comfortable with how long it may take to sell the investment and realise your investment.
Open Ended Investment Company (OEICs): An alternative structure to Unit Trusts for investment funds. OEICs are different in that they only have one price (rather than a bid and offer price) however a Dilution Levy may be applied in certain circumstances.
Personal Equity Plan (PEP): PEPs were launched in 1987 and were replaced by ISAs in April 1999, though existing PEPs have been allowed to continue in their tax-advantaged state and can now invest in a wider variety of investment funds.
Risk: Most investments have a degree of risk attached to them. Even if you hold cash you could find that inflation erodes the true value of your money. Any asset that can be bought and sold on a stockmarket has an element of risk attached to it and you should carefully consider the level of that risk before you decide to invest. Many investors will accept a certain level of risk for potentially higher returns.
Stock: A term now used interchangeably with shares.
TESSA: Full name: Tax Exempt Special Savings Account. This has now been replaced by ISAs, your holding must be kept in cash.
Unit Trust: An alternative Investment Fund structure to OEICs. Clients pool their money with other investors to buy units in a professionally managed fund of shares or bonds.
Yield: For Investment Funds the yield is the current annual income produced by the fund and it is expressed as a percentage. This yield is not guaranteed and may fluctuate throughout the year.