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FINANCIAL
GLOSSARY : A
Accumulation
Unit
Type of unit in
a unit trust where the income is reinvested automatically, thereby increasing
the price of the unit.
Active Management
An active fund manager
is one who tries to outperform stock market indices by skillfully selecting
winning stocks.
Additional
Voluntary Contributions (AVCs)
AVCs are a top-up
payments made by people into their pension schemes to boost their eventual
retirement income.
There are two types
of AVC.
Additional voluntary
contributions (AVCs). This type of top-up policy is run by employers,
and contributions are normally taken from the employees pay.
Free-Standing AVCs
(FSAVC). A top-up pension policy that is taken out with an investment
firm, and is separate to an employer's pension scheme.
AVCs tend to be
cheaper to make because the administration cost are lower as the employee
will already be in the pension scheme. An FSAVC may be slightly more
expensive due to an another company making the investment to make your
money grow.
The total amount
that can be paid into a pension from all sources, including FSAVCs and
AVCs must not exceed 15 per cent of your earnings in any tax year. Tax
relief is also received on AVCs at your basic rate, as with other pension
contributions.
Advisory
stockbroker
A broker who gives
personalised advice on what shares or other investments to buy.
Annual management
charge
This is a charge
paid to a company for managing your investments. (This could be a fund
manager, stockbroker or financial adviser).The Annual management charge
can vary from 0.5 per cent to around 1.5 per cent, and is dependent
upon the type of investment and the degree of advice received.
Alternative
Investment Market (AIM)
Aim is designed
as a separate market for the shares of smaller growing companies that
are not yet ready for a full listing on the London Stock Exchange. It
allows them access to investment capital without the cost and regulatory
burdens of a full listing on the main market. The Aim is usually used
as a stepping stone to the main market.
The shares of companies
on the AIM can be risky because the companies don't have long track
records and if you want to sell your investment there are not always
buyers for your shares. However, there is a potential for big rewards.
Amortisation
Amortisation is
(1) the gradual writing-off in value of an asset over time - allowance
for depreciation, (2) Repayment of a loan by installments.
Annual General
Meeting (AGM)
This is the annual
shareholder meeting. All companies apart from the very small are required
to have an annual general meeting by law. The background to the company's
annual accounts are normally covered in the AGM as well voting for new
directors.
Annual Percentage
Rate (APR)
The APR is the interest
rate figure that indicates the total cost of borrowing, including any
charges. When you borrow money, every lender is required by law to quote
this rate. The APR is the best way of comparing like with like. It was
introduced as part of the Consumer Credit Act of 1974 and is mostly
used for credit cards, personal loans and mortgages.
Annual report
and accounts
All companies that
trade on the London Stock Exchange have to provide shareholders with
an annual report and accounts. The annual report and accounts show all
the financial facts and figures for the year, including profits and
losses, and the directors' salaries and pay increases.
Annuity
An annuity is essentially
a regular income for life and is usually purchased with your pension
fund when you retire. The rate of income you receive from the annuity
will depend on your age and the amount of capital you invest. For example,
if you are 65 years old, you will receive less as opposed to 75 years
old because you are expected to have a longer life than a 75 year old.
It is best to shop around rather than just accept the annuity quote
given to you by your pension fund provider because there are several
different options available.
Annuity
Share
This is essentially
another term for an income share within a split capital investment trust.
It is not usually worth much at the end of the trust term because the
capital value is distributed as income to the investor.
Approved
Investment Trust Company
This is an investment
trust company that doesn't have to pay capital gains tax on profits,
that it makes from the sale of investments within its portfolio.
Arbitrage
This is the process
of buying securities at a low price in one market and simultaneously
selling them in another market at a higher price to make a profit.
In share trading,
Investors called risk arbitrageurs attempt to make profits from an expected
rise in the price of a takeover target's shares and a drop in the price
of the bidding company's shares. These traders simultaneously buy stock
in the target company while selling those of the bidding company. They
will also invest in the target company if they think, the bidder will
be forced to raise his offer price.
Ask price
The lowest price
at which an investment can be sold at a given moment.
Association
of Investment Trust Companies (AITC)
The AITC is the
main trade body representing over 300 investment trusts.The industry
has often laboured in the shadow of unit trusts, even though investment
trusts are generally cheaper and can offer better returns over the long
term.
Association
of Unit Trusts and Investment Funds (AUTIF)
Autif is the main
trade association for the retail fund management industry. It promotes
investment in mutual funds, such as unit trusts and open-ended investment
companies (OEICs), including individual savings accounts (ISAs) and
personal equity plans (PEPs). It also lobbies government and liaises
with the regulators on behalf of its members, which manage around £255
billion of assets.
