Alternative investments
Investments beyond mainstream asset classes such as equities, bonds and cash. Can refer to property, venture capital, commodities, and hedge funds among other investments.
Annual General Meeting (AGM)
The annual meeting at which shareholders in a public company can hear about its progress and future direction and vote on issues.
Asset class
A group of investments with shared characteristics. Equities, bonds, property and cash are considered the four main asset classes.
Bare trust
A legal structure that allows investments to be held on behalf of a beneficiary – e.g. a child – until they are ready to take ownership. The beneficiary has all legal right to the capital and assets in the trust.
Bid price
The price at which shares in an investment company can be bought. See also ‘offer price’.
Bid-offer spread
The difference at any given time between the bid price at which you can buy shares in an investment company and the offer price at which you can sell them. Typically the bid price will always be marginally higher than the offer price.
Board of directors
The group of individuals elected to represent shareholders, to ensure that an investment company is being run in the shareholders’ best interests, and to determine the company’s future direction.
Bond
A security issued by a government, company or organisation to raise capital. A bond pays investors a regular (and usually fixed) income and will typically return investors their capital at the end of a fixed term. Because of these features, bonds are generally considered to be lower risk than shares. See also ‘fixed income’.
Buyback
A programme by an investment company to buy back its shares from investors in order to raise the value of those that remain in the market. Commonly used to tackle shares that are trading at a deep discount to their underlying net asset value.
Capital gains tax
The tax payable by individuals on profits made when assets such as shares, property or other investments are sold.
Child’s pension
A scheme that allows money to be invested on behalf of a child towards their retirement, with tax relief available on contributions.
Closed-ended investment fund
Investment vehicles such as investment companies that have a fixed number of shares in issue, which means that their share price is driven by investor demand. See also open-ended investment fund.
Currency risk
The risk that fluctuations in currency exchange rates will affect the return made on an overseas investment.
Dealing charge
The cost levied by a stockbroker or other share-dealing service to buy and sell shares in an investment company on your behalf.
Discount
Refers to investment company shares that are trading at a price below the value of the company’s underlying net asset value per share. This indicates the shares may be undervalued.
Designated account
An investment plan set up by one person but designated to another, e.g. a child. Designation allows you to retain ownership of the investment, with the option – but not the obligation – to transfer them to the other person at a later date, e.g. when a child reaches 18.
Dividend
The annual share of profits and income that an investment company chooses to pay out to its shareholders.
Emerging market
A country or region whose economy is at a relatively early stage of development.
Equity
Another name for an ordinary share – so called because each one gives the owner an equal share in a company. An equity holder is entitled to share in the company’s profits and vote on issues that affect the company. Equities are one of the main investment asset classes alongside bonds, cash and property.
Fixed income
Another name for bonds issued by governments, companies and other organisations that pay out a fixed and guaranteed income each year.
Gearing
The practice by some investment companies of borrowing money to invest alongside shareholder capital in order to boost or ‘gear up’ potential returns. Gearing can increase the risk profile of an investment company.
Gilts
A type of bond issued by the UK government.
HM Revenue & Customs (HMRC)
The UK government department dealing with tax.
Income tax
The personal tax payable on wages, other earnings and income generated by investments.
Individual Savings Account (ISA)
A UK investment plan that shelters investments held inside it from income tax and capital gains tax.
Infrastructure
The fundamental systems and facilities that allow a city or country to function effectively – such as transport, power and communications systems. In investment, infrastructure is often considered an asset class in its own right.
Inheritance tax
The tax that’s potentially payable on what a person leaves behind – their estate – when they die.
Investment company
A company listed on a stock market that looks to make its profits by investing in other companies and other investments.
Investment platform
A service that allows investors to buy, sell and manage investments online.
Investment trust
A type of investment company that specifically originated in the UK and that’s structured as a public limited company. Increasingly the terms ‘investment company’ and ‘investment trust’ are used interchangeably.
Investment manager
The individual or company tasked with managing the investment portfolio of an investment company or fund. Unless an investment company is self-managed, its board can change the investment manager if performance is not considered up to standard.
Junior ISA
An individual savings account for a child, with lower annual investment allowances than for an ‘adult’ ISA.
Key Information Document (KID)
The document provided to investors in a retail investment product or fund, outlining its features, risks and costs. KIDs have a standardised format to make it easier to compare different products.
Leverage
Another term for ‘gearing’.
Liquidity
In investment terms, refers to how easy or hard it is for an investment or asset to be bought or sold. Cash is the most liquid asset class while property and shares in private companies not traded on the stock market can be illiquid.
Listed company
A company that’s quoted – or ‘listed’ – or a stock market such as the London Stock Exchange, where its shares can be bought and sold. Many public limited companies (PLCs) including investment companies, are listed – although it is not a legal requirement in order to be a PLC.
London Stock Exchange
The main UK market on which shares and other securities are traded, including the shares of investment companies. The activities of the London Stock Exchange largely now take place digitally rather than in a physical market place.
Multi-asset fund
An investment funds that invests across a wide range of asset classes – which could include equities, bonds, cash, property and also hedge funds, commodities and private equity. Investing across so many asset classes can help to diversify risk.
Mid price
A value midway between the offer price and a bid price on a share or other security. Investment companies use the mid price of investments to value their investment portfolio. The mid price of an investment company is widely used to calculate its past performance.
NAV per share
A widely-used measure to assess the underlying value of a share in an investment company. The value of the net assets in an investment company is divided by the number of ordinary shares in issue. So if the total net asset value of an investment company is £100 million and there are 50 million shares in issue – the NAV per share is £2 (£100 million divided by 50 million). The NAV per share helps investors see if the current share price is good value or not.
Net Asset Value (NAV)
The total value of an investment company’s assets – primarily its investment portfolio – minus any outstanding costs, debts and loans.
Nominee
A company that holds shares, such as those of investment companies, on an investor’s behalf. Many share-dealing services and online investment platforms will buy and sell shares for their customers through a nominee, which can be more efficient and cost-effective. But as the nominee is the legal shareholder, investors need to check if shareholder rights such as receiving the annual report or voting at the Annual General Meeting will be passed on.
Offshore investment company
Typically refers to investment companies registered in offshore UK centres such as the Channel Islands. Being offshore used to confer some tax advantages over being registered on the mainland but these have diminished in recent years.
Ongoing charges
The costs that investment companies and other funds levy each year for investment management and administration. An ongoing charges figure aims to allow costs of different products to be compared on a like-for-like basis.
Open-ended investment fund
An investment fund which is constantly creating and cancelling units/shares as investors look buy into or sell out of it. Unit trusts and OEICs are both open-ended funds. Investment companies are closed-ended as they have a fixed number of shares in issue which are bought and sold on the stock market.
The unit or share price of an open-ended fund will always track the value of its underlying investment. A closed-end fund’s share price could be higher or lower than the value of its underlying investments, depending on market demand for its fixed pool of shares. However, because an investment company doesn’t have to worry about investors demanding their money back at any time, the investment team can take a longer-term view of the portfolio and invest in less liquid investments if it wishes.
Personal allowance
The amount of income an individual can earn each year in the UK before any income tax becomes payable.
Platform
An online venue on which investments such as investment companies, unit trusts and OEICs as well as other company shares and securities can be bought and sold and investors can view and manage their whole portfolio.
Public Limited Company (PLC)
A company whose shares are made available to the public – and where a shareholder’s potential liabilities are limited to the amount of money they have invested in the company’s shares (they can’t be pursued for any other debts or losses the company might have).
PLCs are strictly regulated in the UK and are legally required to disclose detailed information about their financial position. Most PLCs may be listed on a stock market such as the London Stock Exchange but this is not a legal requirement.
Premium
Refers to investment company shares that are trading at a price above the value of the company’s underlying net asset value per share. This indicates the shares may be overvalued.
Private equity
Shares in private companies that are not traded on a public stock market. Private equity funds can give access to investment opportunities not widely available to most investors – but they can also be harder to buy and sell and are therefore considered higher risk.
Proxy
A facility to allow shareholders to vote at annual general meetings if they cannot attend themselves. Shareholders in an investment company may be sent proxy forms listing the resolutions on which they are invited to vote.
Real Estate Investment Trust (REIT)
A specialist and tax efficient investment company created to invest in properties with rental income. REITs are a well-established and globally recognised structure for property investments. They provide investors with the opportunity to invest in a diverse portfolio of properties across different sectors.
Providing certain key rules are met, UK REITs do not pay tax on the profits from their rental income or on their capital gains, which can potentially boost returns. In particular, 75% of a UK REIT’s profits must derive from property or property-related investments and 90% of its rental income profits must be paid out to its investors each year. These payments are known as “property income distributions” (PIDs) and can be supplemented by normal dividends. Some categories of shareholders may elect to receive their PIDs gross, without a tax deduction, such as UK companies, charities, local authorities, pension schemes and managers of PEPs, ISAs and Child Trust Funds.
Registrar
The professionals who maintain an up-to-date register of all the shareholders in an investment company. The registrar ensures dividends are paid out to the correct individuals and that company information such as the annual report is sent out on time.
Regular savings plan
A share plan that allows regular monthly amounts to be invested into an investment company or other type of investment fund.
Self-invested personal pension (SIPP)
A personal pension where the individual has extensive freedom to choose which investments to hold in it.
Self-managed investment company
An investment company whose investment portfolio is managed by its own investment team – or by its directors – rather than appointing a third-party investment manager.
Share plan
A savings scheme offered by investment managers that allows both one-off sums and monthly amounts to be invested in the investment companies they manage.
Split-capital investment company
A type of investment company that offers more than one type of share class – e.g. capital shares for investors looking for growth and income shares for investors seeking a regular income.
Stamp duty
The 0.5% government tax levied when shares are purchased.
Stockbroker
A firm that can buy and sell shares on the stock exchange on an investor’s behalf. Increasingly, stockbrokers offer online share-dealing services.
Stock exchange
A public venue on which shares, bonds, warrants and other investments can be traded, with the latest market price of investments being published throughout the day.
Stocks & shares ISA
The type of individual savings account that can invest tax-efficiently in investment companies and other investments. The other main type of ISA in the UK is a cash ISA which can be used to hold bank and building society savings accounts tax efficiently
Tax relief
The repayment of tax that’s given on contributions into pensions and venture capital trusts to incentivise people to save for their retirement or to back small companies
Venture Capital Trust (VCT)
A type of investment company that invests in very small companies that are looking for capital to help grow their business. To encourage investors to support these small but higher-risk investments, VCTs offer some tax breaks. Investments into newly-issued VCTs attract tax relief, which can help to reduce the investor’s overall tax bill. Also, there is no capital gains tax to pay on any profits made when VCT shares are sold. Plus, profits from other investments won’t be subject to capital gains tax if they are reinvested in a VCT.
Volatility
The tendency for the market value of investments such as shares to rise and fall. The sharper these rises and falls are, the more volatile an investment is said to be. Deciding how much volatility you can accept in your investments is a key element of managing investment risk.
Yield
The income on an investment expressed as a percentage of its value. For example, if an investment company’s share price is 500p and it pays a dividend of 5p, its income yield is 1%.
