Jargon buster.

We've created our Jargon Buster to explain some of the most commonly-used investment words and terms.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Active management

An actively-managed investment fund is one where your money is invested in a portfolio of assets selected by a professional fund manager. Each fund manager constantly monitors companies, economic conditions and markets, and decides where it’s best to invest to meet the investment fund's objectives.

Annual management charge or AMC

Covers the fund manager's management costs and is taken out of the assets as a percentage of the funds value.

Asset allocation

Is the process of deciding what proportion of an investment portfolio should be invested in different types of investments (for instance, shares or bonds), in what markets (what regions and countries) and in what sectors.

Asset class

There are four main categories of asset class:

Cash – The least risky of the four asset classes but the risk is often accompanied by modest returns on investment.
Shares/Equities – Shares issued by a company normally listed on a stock exchange. Individuals who buy shares hold a share in that company and are entitled to dividend payments and voting rights.
Corporate bonds or fixed interest investments – Are loans to companies. They usually pay an agreed level of interest each year and aim to pay back the capital at the end of a stated period. There are different types of bonds determined by a credit rating system. A ‘risky’ or ‘sub-investment grade’ bond has a lower rating than an investment grade bond. The lower the rating, the riskier the bond.
Property – Invests in commercial property such as shops, office blocks, retail parks and warehouses.

Autoswitch

This facility gives you the opportunity to switch your unit trust investment to an ISA at the start of a new tax year. This means your investment moves to a more tax-efficient position as easily as possible.

BACS

Banks’ Automated Clearing Services. A system supported by the major UK clearing banks for automated cash transfers between accounts, eliminating the need for cheque payments.

Bid / Offer Spread

The spread is the difference between the buying and selling price of units on any day. The spread is made up of two parts:

An allowance for the difference in the buying and selling price of all the investments held within the fund. This spread includes any stamp duty and stockbroker fees. The size of this part of the spread mainly depends on the type of investments held. The spread tends to be larger for funds investing in smaller companies, emerging markets, commercial property and higher risk corporate bonds.
Any initial charge on the fund.

Bid Price

The price at which units are 'sold' or cashed in by the customer.

Capital

Generally viewed as the amount of the original investment.

Capital gain

The difference between the price at which you buy an asset and the price at which you sell, transfer or give it away.

Capital gains tax (CGT)

This is a tax which could be charged on certain capital gains.

Cash ISA

You can currently save up to £5,640 in a cash ISA, to benefit from tax-efficient savings. We don’t offer Cash ISAs online, by telephone or post.

Consolidated Confirmation Note (CCN)

The Financial Services Authority requires companies like us to send confirmation of customer transactions every six months. With many of our customers' transactions, for example lump sum investments or withdrawals, they receive a Contract Note and will also be notified of these transactions in their annual statement. However, for some transactions such as regular investments, the customer doesn't receive a Contract Note every time they invest.

Corporate bond

Corporate bonds are a type of fixed interest security. When you invest into a corporate bond fund, instead of 'lending' money to a bank - which is effectively what happens when you place money on deposit - we lend your money to companies who agree to pay an agreed level of interest over a certain period of time.

Derivatives

Some investment funds can use specialist investments known as derivatives. Their name reflects the fact that their price is derived from a change in value of the investment that it's linked to, such as shares, property or bonds. Experienced managers use derivatives as part of an investment strategy to manage the effect of possible market falls or changes in exchange rates. This reduces the cost of investing in assets and helps to manage cash flow.

For some investment funds, derivatives will be used to seek to enhance overall investment returns, manage risk and to help protect returns from market falls. This includes investing in derivatives whose value rises when the market falls, but whose value falls if the market rises.

Designated account

If you invest in an investment fund in your name for the benefit of someone else, such as a child or grandchild, then the investment is still yours. You'll pay whatever taxes you would normally pay on it. It’s possible for you to "designate" the investment in the name of the other person as a way of identifying that the investment has been made for that person.

Equities

Shares issued by a company normally listed on a stock exchange. Individuals who buy equities hold a share in that company and are entitled to dividend payments and voting rights.

Ethical investment

An investment that conforms to a range of ethical and environmental guidelines.

Exit fee

Also known as a withdrawal fee. We won’t charge you an exit fee on any of our unit trusts or ISAs, although some companies may.

Extra expenses

In addition to the annual management charge, the investment fund may also pay other management expenses each year, such as auditors, trustees, custodian, registrar and regulator fees, which are paid out of the fund.

Fixed interest securities

A fixed interest security is a way of 'lending' money to a government, or to a company, in return for an agreed level of interest over a set period. This type of investment is intended to provide a regular, reliable income.

FTSE

Is the Financial Times Stock Exchange, an independent company jointly owned by the Financial Times and the London Stock Exchange.

Fund manager

A person professionally qualified to manage funds to meet financial goals for the benefit of the investor(s). A fund manager will make the decision about which assets to invest in and how the investment is split, so it’ll meet its aims.

Fund of funds

Allows you to invest in several funds to create a diverse portfolio through a single investment. Also known as multi manager funds.

Gilts

Fixed income or index-linked bonds issued by the UK Government to raise public funds, also known as gilt-edged securities. They are usually secure but they are not entirely without risk. This type of investment is intended to provide a safer return on your investment over a set period of time.

Gross income

Income before tax.

Gross interest

Interest before income tax has been deducted.

HMRC

HM Revenue & Customs. They’re responsible for collecting taxes.

Income distributed

This is where any income earned by the investment fund is paid direct to your bank or building society account, and isn't reinvested into the investment fund. If you choose to receive an income you’ll be given ‘distribution units’.

Income reinvested

This is where any income earned is reinvested back into the investment fund. This increases the value of the investment fund. If you’re investing for income, you should look for funds offering 'income distributed’. For most investment funds, if you choose to reinvest your income, you’ll be given ‘accumulation units’.

Index-tracker or Passive Fund

Index-tracker investment funds invest in most or all of the same shares, and in a similar proportion, as the index they are tracking, for example the FTSE 100 Index. Index-tracker funds aim to produce a return in line with a particular market or sector, for example, Europe or technology. They are also sometimes known as 'tracker funds' or ‘passive funds’.

Initial charge

The initial charge is a percentage you'll pay each time you make an investment in certain funds or unit classes.

Investment fund

Lets you put your money together with other investors’ to buy a wider range of investments than you would be able to achieve on your own. Funds are managed by professional fund managers.

ISA

ISA stands for Individual Savings Account. An ISA is simply a ‘tax-wrapper’ around a product, for example, a unit trust, that makes it more tax-efficient. You can invest in a cash ISA and/or a stocks and shares ISA.

Inflation

The increase in prices over a period of time. As prices rise, the value of money falls, so your money has less buying power over time.

Junior ISA

A Junior Individual Savings Account allows you to currently save up to £3,600 per tax year tax-efficiently for a child.

Key Investor Information (KII)

Covers all key information you need to know before you invest. You need to ensure you've read the most recent version of the document before investing.

Lipper

Is a Thomson Reuters company and a global leader in supplying fund information, analytical tools, and commentary. Lipper is recognised as one of the industry standard for benchmarks and classifications for asset managers, fund companies and financial intermediaries.

Lump sum investment

An investor can choose to make regular monthly contributions into a fund or pay a larger amount as a lump sum. Lump sum payments are often one-off payments, with an initial minimum investment amount of £500 for ISA or unit trust investments. There is no maximum lump sum investment for unit trusts, although you can invest a maximum of £50,000 online. The maximum lump sum investment for an ISA is £11,280.

Monthly / regular investment

An investor can choose to make monthly contributions to their chosen investment fund, known as regular investing. The minimum monthly contribution is £50 for ISA or unit trust investments. There is no maximum monthly contribution for unit trusts.

Morningstar

A company which provides information about the investments industry. They have operations in 19 countries and currently provide data on more than 325,000 investment offerings.

Multi Manager funds

Multi Manager investment funds allow you to invest in several funds at the same time through one simple investment. Professional fund managers select, monitor and change the underlying funds based on set criteria, for example, the investment quality and investment objective of the providers.

Multi Manager investment funds invest in funds, not shares. Each multi manager investment fund holds a mix of funds covering many different types of asset, industry sectors and markets. The funds may also be sourced from more than one provider. For example, our multi manager investment funds may invest in funds managed by well-known and respected companies such as Invesco Perpetual, Schroders, M&G, as well as in our own funds.

My Account

Our online account management service. It allows you to manage your investment or pension online 24 hours a day. You can change your contributions, switch funds or simply check up on your investment funds whenever it suits you. Register here.

Nominee

Is a company or person who looks after the ownership of investments on behalf of someone else.

Offer price

The price at which we ‘sell’ units.

Open-Ended Investment Companies (OEICs)

Are established as companies that issue shares to investors. The value of an OEIC is set on a daily basis and divided into shares of equal worth. They are similar to unit trusts as they put your money together with other investors. They invest in sub-funds in different market sectors which gives them greater diversity.

Passive funds - see Index-tracker

Phased investment option

Allows you to use your annual ISA allowance any time in a tax year but have your investment phased into your chosen investment fund(s) over time. Your money is phased or distributed into the investment fund over 12 months in equal instalments. This allows you to invest in an ISA but not expose your money to the stock market all at once.

Portfolio

A holding of investment funds. This could be split across ISA and unit trust investments. A balanced portfolio is made up of a number of different types of assets such as cash, shares, corporate bonds and property.

Portfolio turnover rate (PTR)

This is a measure of how frequently the fund manager is buying and selling stocks in a unit trust. It gives an indication of how much the investments in a fund have changed in a year. A PTR of 200% is equivalent to all the investments having been replaced once.

Prospectus

A legal document provided by businesses to describe the investments/products they offer customers. The Prospectus usually provides investors or potential investors with fund information.

Risk

All investment funds have risk factors and some have higher overall risk ratings than others. Higher-risk investment funds offer the potential for higher returns but carry with them an increased risk of not getting back all the money you initially invested. The lowest risk type of investment is cash.

Securities or Stocks

Capital of a company raised through the issue and subscription of shares.

Share price

The price at which you can purchase shares in a company on the stock market. The share price is determined by the financial market and so can fluctuate on a daily basis.
Legal & General’s share price

Shares are sold by companies to raise capital. If the company is a Public Limited Company or Plc, their shares will be available to purchase on the stock exchange. Shareholders are entitled to a share of company profits, usually paid as dividends, and have the right to vote on major decisions. (Also, see Open-Ended Investment Companies (OEICs).

Stamp Duty Reserve Tax (SDRT)

Any unit trusts which invest in UK shares, have to pay SDRT each month. This is paid out of the assets of the fund. The duty is paid on any units the trusts buys back from one investor and sells to another. The amount of SDRT paid is reduced if part of the trust is not invested in UK shares, including any uninvested cash.

Stock exchange

As the name suggests, a stock exchange is where stocks and shares in companies can be bought and sold. The Financial Times Stock Exchange 100 Index (FTSE 100) lists the 100 largest companies on the London Stock Exchange. These companies are the largest in terms of market capitalisation, the total value of the shares issued by the company. See also FTSE.

Stocks and shares ISA

You can invest your full ISA allowance of £11,280 in a stocks and shares ISA each tax year. Alternatively, you can invest £5,640 in a stocks and shares ISA and save the remaining £5,640 in a cash ISA.

Switching fee

Switching is when you choose to change your fund choice and/or allocation. You can make a switch at any time and the service is currently free of charge if you switch. You can switch online if you’re registered with My Account. If you decide to switch into a unit class with an initial charge, the initial charge may be taken.

Total expense ratio (TER)

Shows the total annual operating costs of a unit trust or OEIC, such as annual management charges and extra expenses.

Tracker

Please see Index-tracker.

Transfer

You can transfer stocks and shares and cash ISAs between providers without losing their ISA status. You can transfer a cash ISA to a stocks and shares ISA but not the other way round.

UK dividends

Dividend payments are made to shareholders from a company's profit. The amount of payment is decided by the company directors and cannot be guaranteed. Some unit trusts pay their income in the form of ‘UK dividends’.

Unit trusts

A unit trust:

Lets you put your money together with other investors’ to buy a wider range of investments than you would be able to achieve on your own.
You’ll be able to invest in one or more of a range of assets like equities, fixed interest securities, commercial property or cash which can help reduce risk.
You can invest an unlimited amount in a unit trust, but you won’t get the tax advantages of an ISA. You can invest up to £50,000 online, today.

Valuation point

Is the point in time on each business day that the unit trust is valued and a price calculated. The valuation point can be found in either the 'Additional Information' or 'Key Investor Information' documents.

Volatility

The degree of unpredictable change over a period of time.

Withdrawal fee

Also known as an exit fee. Some companies charge a fee when you cash your units in. None of our investment funds has exit fees.

Wrapper

A ‘wrapper’ is designed to go around an investment to make it more tax-efficient. For example, an ISA wrapper allows you to invest in a unit trust without having to pay personal income or capital gains tax.

Yield

There are 3 different types of yield

Funds paying a divided distribution have a Historic Yield.
The Historic Yield reflects distributions declared over the past twelve months. It does not include any initial charge and investors may be subject to tax on their distribution.

Funds paying an interest distribution have a Distribution and a Underlying Yield.
The Distribution Yield reflects the amounts that may be expected to be distributed over the next twelve months. It is based on a snapshot of the portfolio. It does not include any initial charge and investors may be subject to tax on distributions.
The Underlying Yield reflects the annualised income net of expenses of the fund. It is a snapshot of the portfolio. It does not include any initial charge and investors may be subject to tax on distributions.

If the Distributions Yield is higher than the Underlying Yield this is either because the fund distributes coupon income and/or a portion of the fund's expenses are charged to capital. This has the effect of increasing distributions and constraining the fund's capital performance.

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