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This glossary has been developed as part of our commitment to providing you with the highest level of service. Whilst not exhaustive, it defines some key investment terms and we hope that you find it useful.

Glossary A – Z


Accounting Date - Organisations prepare their annual accounts covering a period of 12 months. The last day of this period is called the accounting date.

Accumulation Date - This is the date when income attributable to accumulation shares or units is credited to the fund and reflected in the price of shares or units.

Accumulation Share – A class of shares within an investment fund or a class of units within a unit trust where net income attributable to the investment fund or unit trust is automatically re-invested in the investment fund or unit trust and reflected in the share or unit price, rather than being paid out to investors.

Accrual - If something is accruing, it is building up day by day. If an organisation owes money for goods and services but has not received a bill up to the date it prepares its accounts and will estimate what it owes. It will then include the debt in its accounts. This estimated liability is called an accrual.

Active Investment Management - The approach whereby fund managers actively select stocks which they believe will outperform a particular index or market.

AER - This stands for annual equivalent rate. It is quoted by financial institutions, such as banks, to show how much the interest rate would be if the interest was worked out just once a year. It is intended to make it easier for people to judge how much interest they pay (or receive) when it is being worked out more than once a year. It is also intended to make it easier to compare different financial products.

Alternative Companies List (ACL) - The Malta Stock Exchange's market for small, young and growing companies.

Alternative Investment Market (AIM) - The London Stock Exchange's market for small, young and growing companies.

Annual Report - This is a report which includes a company’s annual financial statements, together with the directors and auditors reports thereon. Other statements such as the chairman’s statement is often included. In Annual Reports pertaining to investment funds, one also finds a manager’s report which reports on the investment activities carried out by the fund manager in relation to the investment.

Annual General Meeting (AGM) - This is the yearly meeting of the members of an organisation which must be held in order for the members to approve certain items such as the annual accounts, appointment of auditors and to elect directors.

Annual Management Charge - This is a charge made by the managers of unit trusts, and investment funds. It is usually a percentage of the value of the funds being managed.

Asset - Property, including immovable property (for example, land or buildings) and movable property (for example, cash, stocks or vehicles) that belongs to a person, corporation, estate, or other entity. Debts owed to an individual by others are also an asset. The assets of an investment fund or unit trust may include equities, fixed interest securities or cash.

Asset Allocation - The process of dividing investments among different kinds of assets, such as stocks, bonds, and cash, to optimize the risk/reward tradeoff based on an individual's or institutions’ specific situation and goals.

Audit - An audit is an independent examination of an organisation's records and financial statements (report and accounts) to make sure that: the financial statements show a fair reflection of the financial position at the accounting date; the income and spending is shown accurately; the financial statements meet any legal conditions; and the financial statements are drawn up clearly.

Auditors Report - This is a report and opinion made by the auditor once the audit work has been carried out. For example, an auditor’s report on an organisation’s financial statements will set out the results of the auditor’s work in connection with the financial statements.


Base Rate - The interest rate set by central banks across the world and used as the basis for other banks' rates.

Bear - A bear is someone who expects share prices to fall in the future.

Bear Market - A market in which the general direction of prices is downwards.

Benchmarking - A standard against which the performance of an investment is compared e.g. share price performance could be measured against the FTSE 100 Index, or growth of a unit trust against its sector average.

Bid Price - The highest price any buyer is willing to pay for a security at a given time.

Bid/Offer Spread - This is the difference between the bid price (the price at which the holder is willing to sell) and the offer price (the price at which a person is willing to buy). It is usually expressed as a percentage of the offer price.

Blue Chip - Shares of large, well-known companies and which are considered as being a reliable investment, although less secure than gilt-edged stock.

Board Minutes - A written record of the proceedings and actions of a Board of Directors of a corporation or other entity.

Board of Directors - Persons elected by the shareholders of an organisation to manage and direct the affairs of the organisation.

Bonds - Bonds are debt instruments offered by private, public institutions or governments that want to borrow money. A bond thus represents an asst to the lender and a liability to the borrower. Bonds usually give the holder the unconditional right to fixed money income or contractually determined variable money income. With the exception of perpetual bonds, bonds and notes also provide the holder with an unconditional right to a fixed sum as repayment of principal on a specified date or dates. Bonds can often be bought and sold on the stock market.

Bonus Issue - If a company offers free shares to its shareholders in proportion to their existing shareholdings, it is called a bonus issue (or a scrip issue). The company accounts for it in its books by transferring the face value of the shares from the reserves to issued share capital.

Bull - A bull is someone who expects the price to rise in the future.

Bull Market - A market in which the general direction of prices is upwards.


Capital - The cash or property owned by a business or by an investor that is capable of generating income.

Capital Gains Tax - A tax levied on profits made from the sale of investments.

Closed Ended Schemes - A closed ended scheme is an investment company with fixed share capital. Hence, the buying and selling of shares is subject to the forces of demand and supply.

Collective Investment Scheme – An arrangement whereby a professional fund manager collects money from investors and pools it together. The fund manager will then invest such money in line with the stated objective and policies of the Scheme with the aim of increasing the value of the funds under management.

Compound Interest - Compound interest is interest on the money lent, plus interest on any interest already added to the loan.

Coupon - A coupon is the regular interest payment that is paid periodically over the life of a bond.

Current Assets - These are short-term assets which are constantly changing in value, such as stocks, debtors and bank balances.

Current Liabilities - These are short-term liabilities which are due to be paid in less than one year, such as bank overdrafts, money owed to suppliers and employees' PAYE.

Debenture - A long-term debt instrument that is not secured by a specific asset. In the event of default, the holder does not have a claim against any specific asset(s) of the issuing firm.

Depreciation - Depreciation is the drop in value of an asset due to wear and tear, age and obsolescence (going out of date) as recorded in an organisation's financial records.

Director's Report - Every year, company directors have to prepare a report for the company's members, to explain what the company has been doing and their plans for the future. This report is included in the company’s annual report and financial statements.

Distribution Share - A class of shares within an investment fund or a class of units within a unit trust where part or all of the net income attributable to the investment fund or unit trust is distributed periodically to shareholders or unit holders.

Diversification - A portfolio strategy designed to reduce exposure to risk by combining a variety of investments, such as stocks and bonds, which are unlikely to all move in the same direction. The goal of diversification is to reduce the risk in a portfolio. Volatility is limited by the fact that not all asset classes or industries or individual companies move up and down in value at the same time or at the same rate. diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions.
dividend - The distribution of part of the earnings of a company to its shareholders, normally expressed as an amount per share.


Equity - The term equity is used in a number of instances. It is often used as another word for shares, hence implying an ownership interest. Equity is also an accounting term used to describe the net investment of owners or stockholders in a business. Under the accounting equation, equity also represents the result of assets less liabilities.

European Central Bank (ECB) - A Bank created to administer monetary policy for countries within the European Union that have adopted the Euro.

Ex dividend - If a share is sold ex-dividend the seller will receive the dividend declared just before it was sold. Conversely, the buyer buying a share ex-dividend will not receive the dividend declared.


Feeder Fund - a fund that invest all its assets in only one other fund.

FTSE 100 Index - This Index is an index of the most highly capitalised blue chip companies, representing approximately 80% of the UK market. Used extensively as a basis for investment products, such as derivatives and exchange-traded funds. Recognised as the measure of the UK financial markets.

FTSE 250 Index - This index comprises mid-capitalised companies, not covered by the FTSE 100, and represents approximately 18% of UK market capitalisation.

FTSE All-World Index - The FTSE All-World Index covers 48 different countries and over 2,700 stocks and captures 90-95% of the investible market capitalisation. The index is divided into Developed, Advanced Emerging and Emerging segments, giving investors the opportunity to develop their own investible universe.

FTSE All Share Index - This Index represents 98-99% of the UK market capitalisation, FTSE All-Share is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices.

FTSE 100 Share Index - The main UK share index, representing the price of the top 100 shares. It began with a base value of 1,000 on 3 January, 1984.

Financial Statements - These are the summary of an organisation's financial transactions carried out during the year covered by their accounts, and a 'snapshot' of the assets and liabilities at the end of the year. This is a statement which includes the annual accounts, directors' report and so on.

Financial Year - This is the year covered by a set of annual financial statements.
Fixed Asset - A fixed asset is one which is intended to be used for several years. Examples include buildings and machinery.

Fund of Funds - A fund that invests in other Collective Investment Schemes.

Fund Rating - Fund ratings agencies allot independent ratings to specific funds if such funds have met certain
quantitative and qualitative criteria laid down by the fund rating agency.

Fund Sector - The category, by geography, industry or asset class, in which a fund invests.


Gilts – Debt instruments issued by the UK government as a way of raising liquidity. Most gilts are dated, whereby the government agrees to repurchase them at a guaranteed price on a set future date. Generally a fixed rate of interest is offered to an investor over the lifetime of a gilt.

Gross Interest - This is interest which has not had any income tax taken out of it


Income Shares – See Distribution Shares.

Independent Financial Adviser (IFA) - An adviser committed to offering 'best advice' on the range of investments and plans in the marketplace, rather than promoting investments from one 'tied' company.

Index-Linked Stocks - Stocks whose value is related to the value of a particular index.

Index - A number indicating changes in the average prices of a basket of relevant items in the same category. For example, the FTSE 100 Index gives an indication of aggregate movement in the prices of the leading 100 UK companies.

Inflation - This is the name for general price increases.

Initial Charge – This term is generally used to indicate the charge that an investor incurs when purchasing shares or units in an investment fund or unit trust. The charge is expressed as a percentage and typically ranged from Nil to 4%. Part of this initial charge is retained by the fund manager and part is paid by the fund manager to the intermediary introducing the business.

Intangible Assets - Intangible assets can be termed as non-financial produced. Examples are goodwill and patent rights.

Interim dividend - The directors of a company can review the company's performance part way through the financial year and declare a dividend. This is called an interim dividend.

Investment Risk - The potential loss of part or all of your investment arising out of a number of risk factors such as market risk, inflation risk, default risk, etc.


Liabilities - These are debts that a person or an organisation owes. A person's or organisation’s financial obligations which requires the debtor to make a payment or a series of payments to the creditor as per the terms specified in a contract between them. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.


Market Capitalisation - The number of ordinary shares a company has in issue multiplied by the market price of the company`s shares.

Mature/Maturity – When a bond or an investment policy comes to the end of its life, it has reached maturity.

Micro Cap - Companies that have a net worth of less than US $100 million market capital.
Mutual Fund - A pooled system of group investment developed in the US, equivalent to a unit trust in the UK.

Moody`s - Moody's Investors Service is among the world’s most respected and widely utilized sources for credit ratings, research and risk analysis.


Net Asset Value (NAV) - The net value of a fund's underlying assets.

Net Interest - This is interest which has had income tax taken off it.


Offer Price - This is how much investors have to pay for each unit when investing in unit trusts.

Open Ended Investment Companies (OEICs) - A pooled fund of stock market investments divided into equal shares. Investors purchase shares in one or more of the sub-funds of the OEIC, and the pooling of their money enables investments to be made across a wide range of assets and in many different companies. Shares are allocated to an investor in proportion to the amount of money he or she invests. Each share reflects the value of the underlying investments in the fund.

OEICs and unit trusts are essentially the same except for differences in their legal constitution. An open-end investment company has an unlimited life and a very fundamental feature of such companies is that their capital varies from one day to another such that it stands ready at all times to purchase its shares from its shareholders and is usually continuously ready to offer new shares to the public.

Operating Profit - The profit (or loss) from a company's principal (main) trading activity.

Option - Under this sort of contract, paying an amount of money gives a right to buy or sell goods at a fixed price by a particular future date.

Ordinary Shares - The commonest type of share. These shares carry ownership rights in the company and the right to profits, which are distributed in the form of dividends.


Portfolio - The range of investments held by a fund or person.

Price Earnings Ratio (P/E Ratio) - The market price of a company's shares divided by the earnings per share of that company.

Prospectus - When a public company invites the general public to invest in an issue of shares or bonds, it prepares a document called the prospectus which gives details on the company and the particular issue.


Quartile Ranking - If a fund's performance is first quartile over a period, it means it is in the top one quarter of all funds in its sector ranked by performance over that period. If a fund's performance is in the second quartile over a period, it is in the second top quarter of all funds in its sector ranked by performance over that period and so on.


Redemption Yield - The total yield on a security. It includes both the income expected and the capital growth for the whole of the period up to the date of maturity and eventual repayment.

Retail Price Index - The official measure of inflation calculated by weighting the costs of a basket of goods and services to approximate a typical family's spending pattern. It is sometimes referred to as 'headline inflation'.

Rights Issue - This is an issue of extra shares by a company. Existing shareholders can buy extra new shares in proportion to the shares they already hold. The shares are usually on sale at a price lower than the stock-market price to encourage shareholders to buy. The shareholders can sell the rights if they do not wish to use them.
Running Yield - The interest rate on an investment expressed as a percentage of the market price of the stock.


Scrip dividend - A scrip dividend is when companies will offer to pay dividends in shares instead of cash if shareholders accept.

Scrip Issue - If a company offers free shares to its shareholders in proportion to their existing shareholdings, it is called a scrip issue (or a bonus issue).

Securities - This term is used for bonds, shares, debentures and other assets which carry a right to receive interest or dividends from the investment.

Share - The unit which represents ownership in a company.

Single Pricing - Method of pricing whereby the purchase and sale price of shares in an investment fund is the same. There is however normally an initial charge when purchasing shares.

Standard & Poors - A rating agency that rates companies according to their financial strength.

Stock Exchange - A stock exchange is a market where quoted securities may be traded between buyers and sellers. Institutions can raise capital by selling securities through a stock exchange.


Unit Trust - A pooled fund divided into equal units. Investors purchase units in one or more sub-funds, and the pooling of their money enables investments to be made across a wide range of assets and in many different companies. Units are allocated to an investor in proportion to the amount of money he or she invests. Each unit reflects the value of the underlying investments in the fund. Unit trusts and OEICs are essentially the same, except for differences in their legal constitution.

Unit Linked - Some investment policies, such as endowment policies, are used to invest in other unit trust linked funds. These are called unit-linked life assurance policies.

Upfront Charge - See Initial Charge

UCITS - Undertakings for Collective Investment in Transferable Securities


Valuation Point - This is the date and time when the fund manager revalues the investments in a fund.


Warrants - (a particular form of option) are tradable instruments giving the holder the right to buy from the issuer of the warrant (usually a corporation) a certain number of shares or bonds under specified conditions for a designated of time. Warrant scan be traded apart from the underlying securities to which the warrants are linked and thus have a market value. The treatment of warrants is the same as that for other options, and the issuer of the warrant is considered, by convention, to have incurred liability, which is the counterpart of the asset held by the buyer and reflects the current cost of buying out the issuer’s contingent liability.


XD - Ex-dividend (see definition under ‘E’).

Yield - The yield is the net present rate of return on an investment. For a bond the current yield is the coupon rate of interest divided by the purchase price. A yield is inversely related to the price of a bond, such that as the price of the bond goes up, its yield declines.

Yield Curve - The yield curve is a curve that traces yields on securities with varying maturities. The slope of the yield curve is an indication of the stance of monetary policy. Under normal conditions, interest rates for long term rates are likely to be higher than short-term rates, resulting in an upward sloping yield curve. An inverted yield curve occurs when short-term interest rates rise above long-term rates, usually due to the central bank raising short-term interest rates to prevent the economy from overheating.


Zero coupon bonds - Zero coupon bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount a bond will be worth when it "matures" or comes due. When a zero coupon bond matures, the investor will receive one lump sum equal to the initial investment plus interest that has accrued.

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