for financial advisers only



These are a series of sector groupings defined by the Association of British Insurers for all UK life company funds that it covers to ensure that all funds are grouped with similar funds for comparison purposes.

Accumulation date

The date when income will be paid by a unit trust. This income is reinvested back into the unit trust increasing the value of the units instead of being paid out to the investor.

Accumulation units

These units reinvest the income a unit trust earns, instead of paying it out to investors as an income. Unit holders or policy holders get the benefit through the increased value of the fund.

ACD (Authorised Corporate Director)

An Authorised Corporate Director (ACD) is responsible for operating the ICVC company in accordance with the regulations and the ICVC’s instrument of incorporation.

Active management

A traditional investment approach where fund managers actively build and change a portfolio of assets (eg stocks and shares) in order to take advantage of the best opportunities in the stock market. 

Active market

A market in which the volume of securities traded is higher than normal.

Active position

The difference between the actual level of investment made in a particular asset class and the benchmark level of investment in that asset class.


A professional person qualified to make calculations and valuations in respect of pension funds, insurance funds or other forms of investment. Actuaries apply mathematical, statistical, economic and financial analysis to a particular emphasis on longer-term financial assessment of risk or uncertain financial outcomes. 

Aggressive portfolio

A portfolio which is designed to provide above-average returns by taking above-average risk. Typically, such portfolios have a relatively high exposure to equity investments.

Allocation rate

The percentage of the customer's money that is actually invested in the policy after any initial charges have been taken out.


If you are measuring two investments (normally a fund against an index), the alpha represents the theoretical return of the first investment when the second investment has a zero return, ie it represents the over- or under-performance of a fund in relation to its benchmark. The result is expressed on an annualised basis.

Alternative energy companies

Companies working in and supporting the renewable energy sector.

Alternative Investment Market (AIM)

A list of young and growing companies that do not meet the requirements of the London Stock Exchange listing.

AMC (Annual Management Charge)

A charge made each year by managers of unit trusts, OEICs or investment trusts to cover the expenses associated with running the fund. Although it is expressed in annual percentage figures it is usually split and taken from the fund daily.

American option

An option which may be exercised any time between its initiation and expiration dates (inclusive).

Annual compound return

The annual rate of return earned on an investment which includes any growth, for example: Investment of £100 grows by 5% in the first year; You then have £105 at the start of year 2, this then grows by a further 3%, so at the beginning of year 3 the investment is worth £108.15. This is the effect of compounding. So a growth of £8.15 on £100 over 2 years is actually an annual compound return of 4% per year, not 8.15% divided by 2.

Annual exemption (for Capital Gains Tax)

Each tax-paying individual in the UK is entitled to an annual exemption of £10,600 (2012/2013 tax year rate) on their capital gains each year. This means that they can make this level of gains (on for instance Share sales) without paying Capital Gains Tax.

Annual Management Charge (AMC)

A charge made each year by managers of unit trusts, OEICs or investment trusts to cover the expenses associated with running the fund. Although it is expressed in annual percentage figures it is usually split into 12 monthly amounts and taken from the fund monthly.


The expression of a rate of return over periods other than a year, but converted to annual terms.


An arrangement under which periodic payments are made to a person in return for the investment of a lump sum, usually for the purpose of providing retirement income.

Annuity rate

The percentage rate used to calculate the amount of income payable, following investment of a lump sum in an annuity.


Taking advantage of countervailing prices in different markets – eg the purchase of an asset for a low price in one market and its sale for a higher price in another.

Asset allocation

The percentage split of an investment portfolio among different asset classes (shares, bonds, property, cash etc).

Asset classes

The different types of assets available to investors. For example, equities, cash, fixed interest or property.

Asset management

Also known as investment management, asset management is the professional management of various securities/assets such as shares, bonds, real estate etc to meet the goals of the investor.


Items that are owned by an individual such as property and investments etc. Money in a bank or building society account is known as liquid assets.


The transfer of ownership to another party.

At a premium

A security is said to be selling at a premium when its market price is above its par value.

Attribution analysis

The process by which the return on an investment portfolio is attributed to its manager’s investment decisions, typically, stock selection, asset allocation and market timing.

Authorised Corporate Director

An Authorised Corporate Director (ACD) is responsible for operating the ICVC company in accordance with the regulations and the ICVC’s instrument of incorporation.


Additional Voluntary Contributions – Non compulsory payments made by a member of an employer’s pension scheme who wants to boost their retirement benefits.

Balanced fund

An investment portfolio which diversifies its holdings over a range of asset classes which typically include shares, fixed interest, property and cash.

Balanced manager

An investment manager whose expertise includes asset allocation and the supervision of portfolios containing a variety of classes of investment (as distinct from expertise in managing a particular asset class – see specialist manager).


Software programs developed by the international investment consulting firm Barra International used to evaluate risk profile, chiefly in equity investments.

Base rate

An interest rate set by the Bank of England which reflects the cost of borrowing money from the money markets.

Basic rate tax

The amount of tax you pay on income after you have earned over the lower rate tax band allowance. Basic rate tax is currently 20% (2012/2013).

Basic State Pension

The flat rate (not earnings-related) State pension paid to all who have met the minimum National Insurance requirements. The amount paid is increased if the recipient is married and a spouse or widow(er) may claim on the record of his/her spouse.

Basis point

A measurement of fluctuation of an investment, equal to 1/100 of one percent.


Someone who believes the market will decline (as opposed to bull).

Bear market

A market in which prices decline sharply against a background of widespread pessimism.

Bearer Bond

A bond payable to its holder (bearer).


An index or other market measurement which is used by a fund manager as a yardstick to assess the risk and performance of a portfolio.


This is someone who benefits from a will, a trust, a pension fund or a life insurance policy.

Best advice

A requirement of the Financial Conduct Authority that a financial adviser, whether independent or tied to a single product provider, must provide best advice regarding the most suitable product, having first established a full understanding of the financial background. An additional requirement is that commissions received on products sold should not influence recommendations.


Beta is a quantitative measure of the volatility of a fund or portfolio, relative to the overall market. A beta above 1 shows that a fund is more volatile than the overall market, while a beta below 1 represents a fund which is less volatile.

Bid offer spread

This is a form of charging whereby the price that units are bought and sold at are different. The price of units which a customer can buy is higher than the price at which they can sell the same units.

Bid to bid

Performance of funds is often quoted on this basis as it more accurately reflects the performance of the underlying assets, although not necessarily the return that the individual would have seen due to initial commissions (if any).


A large holding or transaction of shares. Also known as a block trade.

Blue chip

Referring to the shares of a leading company which is known for excellent management and a strong financial structure. The term has become a generic one for quality securities.


Securities which entitle the holder to interest during their life and repayment of the loan at maturity. They can be issued by companies or governments. Not to be confused with an investment bond.

Bond Fund Volatility Ratings

The Bond Fund Volatility Ratings are S & P’s current opinion of a fixed income fund’s sensitivity to changing market conditions relative to the risk of a portfolio composed of government securities and denominated in the base currency of the fund. The ratings range from S1 to S6 with S1 funds possessing the lowest sensitivity to changing market conditions and S6 rated funds, the highest.

Bond ratings

A system for measuring the relative credit worthiness of bond issues using rating symbols, which range from the highest investment quality (least investment risk) to the lowest investment quality (greatest risk).

Bonus shares

Shares issued free by a corporation to its existing shareholders on a pro rata entitlement basis.

Book closing date

The day by which you must be registered as an owner of the stock to receive the dividend. On this day, a record is taken of all the owners of the company and how many shares they own so the company knows whom to pay the dividend to on the payment date. It typically takes two to three days to become registered as a shareholder of a company, so this is not the last day to buy the stock; that is the ex-dividend date.

Book value

The net value at which an asset or security is carried on a balance sheet. In portfolio accounting, book value generally refers to the price paid for the security, as opposed to its current worth or market value.

Bottom-up analysis

The search for outstanding performance of individual stocks before considering the impact of economic trends. The companies may be identified from research reports, stock screens etc. (as opposed to top-down analysis).


An agent who handles investors’ orders to buy and sell securities, commodities, insurance policies or other property. For this service, a commission is charged which, depending upon the broker and the amount of the transaction, may or may not be negotiated.


A fee charged by a broker for the execution of a transaction; or alternatively an amount per transaction or a percentage of the total value of the transaction. Sometimes also referred to as a commission or fee.


One who believes the market will rise (as opposed to bear).

Bull market

An advancing market (as opposed to bear market).


Referring to the incorporation of a number of services or features into a single product. For example, a bundled pension scheme contract might combine the various activities of investment management, insurance, trusteeship and administration into a single service; whereas an unbundled arrangement would see these activities being conducted by a range of different parties.

Buoyant market

A market in which prices have a tendency to rise easily with a considerable show of strength.

Business cycle

An irregular but recurring period of indeterminate scope and origin embracing expansion, prosperity, recession and recovery (also known as an economic cycle). (Opposed to bull market). Bear markets are generally shorter in duration than bull markets.

Buying (offer) price

The price at which you can buy units in a unit trust or life fund.

Call option

An option which gives its holder the right but not the obligation to purchase an asset at a predetermined date (maturity date) for a predetermined price (exercise price). See also put option.

Cancellation period

The period after signing a contract for some financial products during which you are entitled to cancel and receive your money back without penalty. For single payments you might get back less if the value has fallen.


A ceiling or maximum rate of interest under a loan. 


The amount you invest in any type of savings or investment product.

Capital Asset Pricing Model (CAPM)

Sophisticated model of the relationship between expected risk and expected return. The model is grounded in the theory that investors demand higher returns for higher risks. It says that the return on an asset or a security is equal to the risk free return (such as the return on a short-term Treasury security) plus a risk premium.

Capital charge

When a unit trust manager takes the management charges out of the fund’s capital instead of the income it has produced.

Capital Gains Tax

You may have to pay capital gains tax on any profits over a set allowance when you sell assets such as shares or property. You are allowed to make gains up to a certain amount each tax year which are exempt from tax. For the 2012/2013 tax year it is £10,600. Everyone has their own allowance so couples can make gains before they have to pay the tax. If your profits come to more than your allowance you only have to pay tax on the excess over the tax free limit. Some gains you make are exempt from capital gains tax. These include gains from the sale of your car, Personal Equity Plans and Individual Savings Accounts. Also, you do not have to pay capital gains tax when you sell your home provided certain conditions are met.

Capital growth/gain

The amount you receive in addition to the capital you’ve invested when you cash in your investment.

Capital guaranteed

Referring to an investment product, normally offered by a life insurance company, which includes some form of guaranteed return of capital.

Capital markets

The markets for medium- to long-term investments, ie three years and over, in securities such as shares and bonds, as distinct from the shorter term money market.

Capital protected

Referring to a type of investment portfolio which is managed in such a way as to reduce or eliminate the risk of capital losses, usually through the use of quantitative techniques such as protection overlays. See also capital guaranteed.

Capital Redemption Bond

A Capital Redemption Bond is a policy of assurance that will mature after a certain period of time with a minimum maturity value being calculated on an actuarial basis. A redemption contract has no lives assured, and therefore can be passed to future generations.


The sum of the total amount of various securities issued by a corporation, multiplied by the price of those securities. Similarly, the capitalisation of the share market is the sum of the value of listed shares.


Abbreviation for Capital Asset Pricing Model.

Carry back

A member can sometimes transfer pension contributions to an earlier tax year for tax relief purposes. This is called carry back. The carry back rules no longer apply after 31 January 2002.


Generally, coin and note currency of a country in circulation and deposited in cheque accounts and other deposits that are available on short notice. One of the asset classes invested in as part of a typical balanced investment portfolio.

Cash equivalents

Short-term investments held in lieu of cash and readily converted into cash within a short time span (ie bank bills, treasury notes etc), generally with maturities of no longer than 180 days.

Cash-in value

The amount you might get if you cash in an investment.

CAT Standards

CAT stands for Charges, Access, and Terms. CAT standards were introduced by the Government on ISAs in order to help consumers choose financial products. However it is important to remember that CAT standards are not a Government guarantee and that they are not necessarily the best option for an individual consumer.

Certificate of Deposit

A written certificate by a bank or financial institution stating that a fixed amount has been deposited with it for a fixed period of time at a predetermined rate of interest.


A document showing details of units held within a unit trust, shares or bonds.


Technical analyst who charts the patterns of stocks, bonds and commodities to make buy and sell recommendations to clients. Chartists believe recurring patterns of trading can help them forecast future price movements. See also technical analysis.

Chinese wall

An imaginary 'wall' comprising procedures and policies adopted to avoid conflicts of interest within an organisation (eg to separate the stock broking and investment management operations of a financial services group).


The practice of acquiring a holding of shares and then placing both buying and selling order for those shares (usually at about the same price or slightly higher) in order to build up turnover.

Citywire Ratings

The Citywire Ratings provide a totally objective statistical gauge of the individual fund manager’s risk adjusted performance. Citywire considers all managers who run actively managed retail funds within 24 IMA sectors and assigns AAA, AA or A Ratings to managers who achieve or exceed demanding performance thresholds based on their 36 month risk records.

Closed funds

Funds which are no longer accepting new investments, but where the fund is still invested and managed in the usual manner.

Closed-end fund

A pooled fund that has a fixed number of shares usually listed on a major stock exchange. Unlike open-end mutual funds, closed-end funds do not stand ready to issue or redeem shares on a continuous basis.

Closing price

The price at which the final transaction in a security took place on a particular business day. Share prices are quoted daily in the financial pages of leading newspapers and show opening, high, low and last sale (closing) prices, plus net change from the previous day.


Referring to a loan facility in which both maximum and minimum interest rates are specified. The maximum acts as a cap while the minimum rate is a floor below which the interest rate will not be allowed to fall.

Collective investments

Funds which take money from a number of private investors and pool it together in one fund. This method of investment enables investors to invest in a larger number of investments than would otherwise be the case and therefore spreads their risk. Examples are: unit trusts and OEICS.

Collective Redemption Bond

The Collective Redemption Bond is an offshore-based single premium redemption contract. A redemption contract has no life cover and therefore does not end on the death of the policyholder and can be passed to future generations. The bond offers access to almost all open-ended funds on the Skandia platform and investment is tax efficient because of the offshore structure, though withholding tax may be payable on certain dividend income in its country of origin.

Commingled fund

The collective investment of the assets of a number of small funds, sometimes through a master fund arrangement, allowing for broader and more efficient investing.


Money paid by an insurance company to a middle man (eg a financial adviser or direct agent) for selling a product.


A tradable item that can generally be further processed and sold; for example metals, wheat, sugar, coal etc.


Procedures undertaken at regular intervals or on an on-going basis to ensure internal and external controls and regulations are complied with.

Compound interest

In, for example, a deposit account, this is where interest is added to both capital and the accrued interest from time to time. The longer a customer leaves an investment the more advantage they can make of compound interest. Eg in Year 1 a customer is paid 10% on his/her £100 investment. At the end of Year 1 this investment is worth £110. In Year 2 with compound interest taken into account the customer now earns 10% on £110, giving him/her £121 by the end of Year 2. In Year 3 they earn 10% on £121 giving a grand total of £133.10.

Compulsory Purchase Annuity

An annuity which must be purchased on retirement for a member of an insured pension scheme.


An agreement between individuals, companies or other entities, which binds each party and is legally enforceable.

Contract note

A contract note is evidence that you've bought or sold shares or funds. It is an important legal document given that certificates are rarely physically issued these days.


An amount of money placed into a fund. In relation to pension funds, contributions may be made by either employers or employees or both.

Contributory pension

An occupational pension scheme where the employee contributes a proportion of their salary in addition to a contribution made by the employer.

Controlling Director

This is a director who owns or controls 20% or more of the voting capital of a company either directly or indirectly. This 20% includes shares held by the director’s family and associates.

Core funds

Core funds are often considered the essential building blocks or cornerstones of a portfolio because these funds take a 'middle of the road' approach to generating returns for shareholders. Core funds are focused on producing solid long-term results while attempting to manage risk.

Core portfolio

A portfolio comprising (generally), the bulk of a fund’s assets, which is invested in a highly controlled fashion in an attempt to secure the fund’s liabilities with a reasonable degree of confidence. The balance may then be invested in a satellite portfolio(s), which may be invested more aggressively.

Corporate bonds

A debt security issued by a company (non-government bond) to raise capital. The company undertakes to make regular payments of interest at a fixed rate and to repay capital at a future maturity date (see debenture stock, loan stock and unsecured loan stock).

Corporate governance

A generic term covering issues associated with the management practice, board structures and personnel policies of companies. From the investor’s point of view, corporate governance is normally concerned with the degree of influence which should be exerted over companies by their shareholders in order to advance their financial interest, normally through the exercising of voting rights.

Corporation Tax

Tax paid by companies on trading profits and capital gains.


A movement in prices which reverses a previous trend. The term is normally used to refer to a lowering of share prices after a sustained period of increase.


The interest rate applied to the value of a corporate bond or gilt.

Cover note

A temporary document that can be used as evidence of insurance cover, while the actual policy and insurance certificate are being prepared.

Credit risk

The risk of suffering loss due to another party defaulting on its financial obligations.

Credit scoring

A test of an individual’s financial status. Points are awarded on a range of criteria that include income, home ownership, debts and repayment history.

Critical illness insurance

An insurance policy that pays out a capital sum if the life assured is diagnosed as suffering from certain critical illnesses. 

Cum dividend

Referring to a share which is trading such that buyers rather than sellers qualify to receive the next dividend payment. This is usually reflected in the price of the security in question.

Cumulative performance

The performance of a fund’s price over a given period of time.


A country’s unit of exchange that has a value in terms of purchasing goods and services within the country.

Currency option

An option contract which gives the buyer the right (but not the obligation) to buy or sell a specified amount of a foreign currency in exchange for another on or before a specified future date. Sometimes used to hedge securities held in overseas markets.

Currency overlay

An investment management technique aimed at protecting an investor’s overseas currency exposure.

Currency risk

Risk of incurring losses as a result of movements in international exchange rates.

Custodial charges

Charges made by the bank or other financial institution that keeps custody of stock certificates and other assets on behalf of clients.


A bank or other financial institution that keeps custody of stock certificates and other assets on behalf of clients.


Possession of securities by a financial institution on behalf of others, for purposes of safekeeping.

Cyclical stocks

Shares which move directly with the business cycle; generally they advance as business conditions improve and decline when business slackens.


An individual who places orders to buy or sell securities.


A type of debt security backed by the general credit of the issuer and not by a specific security.


A statistical measure dividing a sample into ten numerically equal groups. See also percentile and quartile.

Deed poll

This is the document you will be given if you decide to legally change your name for a reason other than marriage.

Deferred (delayed) annuity purchase

An option available to a member of certain types of pension scheme, under which the purchase of an annuity can be delayed to no later than age 77 (depending on the pension scheme). In the meantime, income can be withdrawn from the fund.


Defined benefit

An occupational pension scheme where the final pension an employee receives is linked to the size of their final salary; also referred to as final salary schemes.


Defined benefit fund

A pension fund in which the benefits to be paid to the member are defined in advance of the member’s retirement. The benefit is usually expressed as a proportion of the member’s salary on retirement. In these funds it is generally the company or sponsor of the fund (rather than the member) which carries the risk as to the ability of the fund to meet its liabilities. See also defined contribution fund.

Defined contribution

An occupational pension scheme where the contributions made by the employer and employee are set and the final pension an employee receives depends on the size of their fund on retirement. This final fund is then used to buy an annuity. Also referred to as money purchase schemes.

Defined contribution fund

A pension fund in which the amount of the contribution payable (as distinct from the end benefit) is defined. In these funds, the benefit payable to a member on retirement constitutes the aggregate of contributions to the fund (both employer and employee) in respect of the member, plus the investment earnings on those contributions. Unlike a defined benefit fund, the investment risk in a defined contribution fund is borne by the fund members.


A general price decline during which consumer spending is substantially curtailed, bank loans contract and the amount of money in circulation is reduced. It is the opposite of inflation and generally applies to more than just a temporary decline.

Delegated switching authority

A legal document in which a policyholder advises the life company that he/she is giving permission to an authorised person/company (usually a financial adviser) to switch the investments within his/her policy without requiring a specific signature each time.


The transfer of possession of securities from one individual or firm to another in fulfilment of contracts made on an exchange and on terms which meet all of the requirements of that exchange.

Deposit account

A savings account from a bank or building society that pays interest on the amount of money held in it.


The Depository is responsible for the safekeeping of securities and independent monitoring of the ICVC’s compliance with FCA regulations.


The writing-down of the cost of an asset systematically over the life of that asset.


A prolonged slump in economic activity, characterised by rising unemployment and serious falls in production and consumption of goods. See also recession.


A financial contract that derives its value from an underlying security, liability or index. Derivatives come in many varieties, including forwards, futures, options, warrants and swaps.

Development capital

Usually refers to investments in relatively small, unlisted companies either in a start-up position or embarking on new or turnaround ventures that entail some investment risk but offer the potential for above average future profits. See also venture capital.


A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities.

Dilution levy

A charge levied by the ACD (Authorised Corporate Director) of an ICVC (Investment Company with Variable Capital) to be made for the purposes of reducing the effects of dilution.

Discrete performance

The performance of an investment during a defined time period.

Discretionary trust

This is a type of trust where the trustees can decide who will benefit from the trust and how much they will get.


When a company pays money (dividends) to its shareholders.

Distribution fund

A fund which is invested to provide a distribution payment of income on a regular basis to policyholders.


The spreading of investment funds among classes of securities and localities in order to distribute and control risk.


The amount of a company’s after-tax earnings which it pays to shareholders.

Dividend (distribution) yield

The return on share investment, calculated by dividing the dividend rate by the market price of the share.

Dividend Discount Model

A model for determining the price of a security based on the discounted value of its projected future dividend payments. These models are very sensitive to interest rates.

Dividend warrant

If a company pays a dividend it provides each shareholder with a dividend warrant. This gives information about the dividend such as the class of share, the amount and the tax credit.

Dow Jones

A set of indices compiled daily from New York Stock Exchange closing prices. The averages are unweighted arithmetic indices, useful for showing general price movements. The Industrial Average consists of 30 industrial stocks. Referred to as the 'Dow Jones' and is probably the most widely quoted US index.

EAFE Index

Abbreviation for Europe, Australia and Far East Index, a stock market index, often used as an ex-United States world equity benchmark by United States investors.

Early retirement

When a member starts to take his/her pension before the normal retirement date of the scheme.

There is a limit on how much of a member’s earnings may be used to work out the limits on contributions and benefits in an approved pension scheme. This limits the amount that a high earner can put into a pension scheme and still get tax relief.

Earnings per share (EPS)

A measure of a company’s performance, calculated by dividing the company’s net operating profit after tax, divided by the number of shares in issue.

Earnings yield

A ratio calculated by dividing a company’s earnings per share by its current share price. The reciprocal of the price earnings ratio.

Efficient Frontier Modelling

An investment portfolio is said to reside on the 'efficient frontier' if it is expected to produce returns greater than other portfolios (ie with different asset mixes) of the same or lesser risk, where risk is defined as the standard deviation of the returns. In order to calculate an efficient frontier, future investment returns and their standard deviation need to be known. These are, of course, unknown and need to be estimated from past market data. However, there is no guarantee that the past will be a suitable guide to the future and so efficient frontiers cannot be determined with certainty.

Electronic Trade Confirmation System (ETC)

The generic term for any message or interface service that enables investors, brokers and custodians to electronically exchange confirmations that trade settlements have occurred.

Emerging markets

Financial markets in countries with developing economies, where industrialisation has commenced and the economy has linkages with the global economy. The financial markets in these countries are immature compared to those of the world’s major financial centres, but are becoming increasingly sophisticated and integrated into the international markets. These markets provide potentially high returns but are subject to high risk and volatility.

Endowment assurance

A life assurance policy that pays out a lump sum after a specific period of time or on death of the policyholder. They can be used as a vehicle for saving or as a way to repay a mortgage. It is important to remember that an endowment is a long-term commitment. A customer who surrenders their policy early may not get back the amount of money they have invested. Note: the definition does not apply to either an Endowment or a Pure Endowment.


An ethical investment fund may follow an 'engagement policy' by using the influence of shareholders to challenge companies about their environmental or social performance. This means entering into a dialogue with companies to improve their environmental or social policies and to promote industry 'best practice'.


Another name for shares held in a company.


The value of an asset (eg a property) less any money owing on it (eg loans/mortgages).

Equity investment funds

An investment fund that invests in shares in UK or overseas companies. International equity investment funds invest either within developed economies or within emerging markets.

Equity risk premium

The difference between the rate of return available from risk-free assets (such as government bonds) and that available from assuming the risk inherent in more volatile investment such as shares.


When a pension in payment is automatically increased at regular intervals by a fixed percentage rate or the increase of a specific index such as the Retail Price Index (RPI).

Ethical investment

An investment approach which takes into account considerations other than solely the financial return potential of particular investments. An ethical portfolio might, for example, avoid investing in alcohol or tobacco.


Ex gratia

A payment made that is not legally necessary under the terms of a contract. It is usually made because of a moral obligation and no legal liability is admitted by the payer when making an ex gratia payment.

Excess return

The return achieved by a security over and above that obtained from a risk-free asset (such as a short-term government bond) held over the same period.

Exchange rate

The price of one currency in relation to another.

Exchange rate risk

The risk that the value of an investment may be diminished by movements in the exchange rate on a foreign currency.


A term meaning 'without dividend' which denotes a share price which is quoted on the basis that the seller, not the buyer, is entitled to the current dividend on the share. (As opposed to cum dividend).


Individual(s) or company(s) who are appointed in a will to deal with the wishes of the deceased, in administering their estate.

External audit

The risk associated with investments in a particular industry sector, country, company etc. Assessments of exposure risk are routinely conducted by responsible investors, as some risk element is inherent in all forms of investment other than cash.

External manager

An organisation (eg an investment management company) engaged to manage and invest funds on behalf of a client.


This is the extension of a company's intranet, to allow selected customers, suppliers and mobile workers to access the company's private data and applications via the internet. It is usually in addition to, the company's public website which is accessible to everyone.

Face value

The value of a bond that appears on the face of the bond, unless the value is otherwise specified by the issuer. Face value is ordinarily the amount that the issuer promises to pay at maturity and is not an indication of current market value.

FCA (Financial Conduct Authority)

A financial service industry regulator. One of the principal aims of the regulator is to protect the consumer.


A person or organisation entrusted with the responsibility of managing, holding or investing assets in the best interest of the owner of the assets. Trustees of pension funds are fiduciaries in respect of the members of their funds.

Final salary scheme

An occupational pension scheme where the final pension an employee receives is linked to the size of their final salary. They are also referred to as defined benefits schemes.


Financial adviser

Individual who gives advice about all aspects of finance. Financial advisers can advise and sell products for a range of insurance companies and investment companies.

Financial Ombudsman

The Financial Ombudsman was set up to provide a free and independent service to resolve disputes between consumers and financial firms. Consumers must complain to the firm involved first, but thereafter the Financial Ombudsman will aim to resolve the dispute within six months.

Fixed income

American term for fixed interest. See fixed interest.

Fixed interest

Referring to income which remains constant and does not fluctuate, such as income derived from bonds, annuities etc. Any debt security which has a fixed flow of income is known as a fixed interest security.

Fixed interest rate

An interest rate, which does not change during an investment or borrowing period.

Floating Rate Notes (FRN's)

Floating Rate Notes (FRN’s) are long-term (5 years or more) debt securities whose interest rates are adjusted periodically in line with a benchmark rate. FRNs appeal to investors who might otherwise be reluctant to commit funds to fixed interest investments for lengthy periods in times of fluctuating interest rates.


The trading area where securities are bought and sold on an exchange.


Forward contract

A cash market transaction in which two parties agree to the purchase and sale of a commodity at some future time under such conditions as the two agree. Unlike futures contracts, the terms of forward contracts are not standardised. they are not transferable and there is no margin or collateral requirement to assure performance of the contract.

Forward Rate Agreement (FRA)

A contract for borrowing or lending at a stated interest rate over a stated period that begins at some time in the future. FRAs are used by parties wishing to protect themselves against future interest-rate movements.


Financial Ombudsman Service

Front end fee

A fee charged to a borrower at the commencement of a loan, or a commission levied on an investor to buy into a unit trust. Also known as a front end load.



Free Standing Additional Voluntary Contribution – Non compulsory payments made by a member of an occupational pension scheme who wants to boost their retirement benefits but keep them separate from their occupational fund.


Financial Services Compensation Scheme

FTSE 100 Index

An index of the Share prices of the 100 largest companies (by market capitalisation) in the UK.

FTSE All-Share Index

An index of the Share prices of over 800 leading companies and Investment Trusts on the London Stock Exchange. See also FTSE 100 Index.

Fully paid-up share

When a company issuing a share has received all the money for it from the shareholder it is referred to as fully paid-up.


A fund is a 'collective' investment where a large number of investors pool their money into one 'pot', which is usually overseen by a fund manager.

Fund manager

The professional company responsible for the day to day running of a fund.

Fund manager start date

The date on which the particular fund manager took on responsibility for running the fund.

Fund manager tenure

The length of time the particular fund manager has been running the fund.

Fund risk number

The Skandia Fund Risk Evaluator takes the actual volatility for a given fund measured over 1, 3 or 5 years (track record permitting) and maps it against the volatility ranges represented by the Skandia Risk Scores 1 to 10. For example, a fund with a three-year volatility figure of 10.8 sits within the volatility range corresponding to a Skandia Risk Score of 5. Fund risk scores provide a retrospective view of a fund’s volatility, which may vary widely over different time periods, and are not necessarily indicative of a fund’s future volatility. For this reason we show scores for three different time periods.

Fund size

The value of all the assets held in a fund. Usually based on the bid or selling price of the underlying assets.

Fund supermarket

A fund supermarket gives you access to a variety of products and allows you to choose from hundreds of funds in one place.

Fund value

The monetary value of a fund, calculated by adding up the value of its underlying assets.

Fund yield

The amount of income that a fund has paid out in proportion to its price, and is usually stated in annualised terms. It may express either actual or expected distributions. A fund's yield is commonly associated with a fund's interest rate or dividend payment.


Fundamental analysis

Analysis of share values based on factors such as sales, earnings and assets that are 'fundamental' to the enterprise of the company in question. These factors are considered in light of current share prices to ascertain any mispricing of the shares.

Futures contract

An obligation to make or take delivery of a specified quantity and quality of an underlying asset at a particular time in the future and at a price agreed when the contract was executed.

Futures exchange

A market in which futures contracts are transacted.


A measure of indebtedness, ie the extent of borrowing as against the equity held by a person or company in an asset. The ability to increase exposure by investing in futures contracts without making the underlying cash available. See also Leverage.


Is a transfer of goods or property to another party. There are limits to the amount of gifts you can make without any tax liability.


A loan to the government usually with a fixed rate of interest and usually over a specified period of time. The original amount is usually repaid at the end of the loan period.

Gilt edged

Low risk investment with high security.

Global CAP:Link

A stochastic asset model built by Tillinghast Towers Perrin (now Towers Watson), which uses mathematical formulae to project many hundreds of plausible, although not necessarily likely, paths for future investment returns for the asset classes. Whilst every effort has been made to make this as accurate as possible, actual future investment returns could be significantly different to those projected by the model. It focuses on the longer term and does not try to predict short term factors that might make one asset class relatively attractive compared to other classes, as such it should not be used for short term, tactical investments.


A colloquial term for the US dollar.


A term that describes when a hostile bidder threatens a company with takeover by purchasing a large number of its shares, forcing the management of the company to repurchase the shares at an above market price.


The total before deductions have been taken away.

Gross Domestic Product (GDP)

A measurement of the aggregate goods produced and services provided within an economy over a year and excluding income earned outside the country. Considered one of the main yardsticks of the health and vitality of an economy. See also Gross National Product.


Gross interest

The amount of interest you receive without any income tax taken out.

Gross National Product

An economic statistic which includes GDP (Gross Domestic Product) plus any income earned by residents from their overseas investments, minus income earned within the domestic economy by overseas residents. See also Gross Domestic Product.

Group of Seven (G7)

The seven major capitalist powers: Canada, France, Germany, Italy, Japan, UK and the US.

Growth investor

One who seeks capital gain from expected further growth in company earnings. Typically, growth investors care less about price/earnings ratios and other valuation measures and more about earnings growth.

Growth stocks

Stocks, whose earnings have grown at an above-average rate over a number of years, and which are expected to continue to grow at a high rate for some time to come.

Guaranteed minimum pension

A guaranteed pension amount paid, as a condition of contracting out of SERPS (State Earnings-Related Pension Scheme) under a Final Salary Scheme, up to and including 
5 April 1997, from which point different rules apply.

Guaranteed product

An investment product sold by life insurance companies that guarantees a return for a specific length of time on a large, lump-sum premium.

Hang Seng Index

The principal Hong Kong Share Price Index.

Headline inflation

The published overall inflation rate, unadjusted for non-economic factors, as opposed to underlying inflation.

Hedge fund

A type of investment portfolio under which the fund manager is authorised to utilise a number of higher risk investment techniques, including using derivatives, short selling and borrowing funds to generate a higher return.


The practice of undertaking one investment activity in order to protect against loss in another eg selling short to nullify a previous purchase. While hedges reduce potential losses, they also tend to reduce potential profits.

High conviction stocks

Investments that a fund manager has high confidence will do well in the future.

High yield corporate bonds

Generally, a high yield bond will be ranked very low by a rating agency, because these are bonds which have a relatively high chance of default, and therefore risk, so have to offer higher returns.

Higher rate tax

For the 2012/2013 tax year the higher rate of tax is 40%.

Holding company

A company which controls another company, usually by owning 50% or more of its shares.


Investment Company with Variable Capital.
The generic term for an OEIC (Open Ended Investment Company) or similar investment vehicle where investors pool their contributions with those of other people, to create a portfolio of assets.


An example of the potential growth rates a customer might expect to receive from an investment. The growth rates used are set by the Financial Conduct Authority, an industry regulator. It is important to remember that the actual return received could be higher or lower than those shown on the illustration.

IMA sectors

Grouping of funds for performance measurement by the Investment Management Association.


Money received by an individual as a salary, or from investments. Cash deposits and bonds will provide income in the form of interest. UK shares will, in most but not all cases, provide income in the form of twice-yearly dividends.

Income drawdown

Enables people with certain types of pension plans to take income direct from their pension fund.

Income portfolio

A portfolio consisting of securities whose principal attractiveness lies in the steady income they provide.

Income tax

Tax paid by individuals on income received over a certain threshold. The amount paid will depend on the amount earned during a tax year period.


Income unit

Unit(s) held within a unit trust that pays out to investors as an income, instead of being reinvested.

Indemnity insurance

An insurance designed to compensate a policy holder for any loss suffered.


In the stock market, an index is a device that measures changes in the prices of a basket of shares, and represents the changes using a single figure. The purpose is to give investors an easy way to see the general direction of shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.

Index fund

A portfolio of securities structured in such a way that its value will closely follow a nominated market index, eg an equity index fund may be designed to track the FT/S&P All Share Index.

Index linked

A way of managing a fund. An index-linked fund simply follows as closely as possible the movement within a chosen market. It does not aim to outperform the market like active management does.

Index linked gilts

A UK government bond (gilt) whose redemption value and interest payments are linked to inflation (as measured by the Retail Prices Index).


Making an adjustment to allow for the effects inflation can have on money, used to reduce the amount payable in Capital Gains Tax.

Another name for Index Tracking. An investment strategy designed to produce a rate of return in line with a specific financial index.


An increase in the level of prices of goods and services in the economy. It is typically measured by examining a basket of goods and services.

Inheritance Tax (IHT)

IHT is a tax that is payable on your estate at a flat rate of 40% on assets over a certain limit (the IHT threshold) that you leave on your death. The Inheritance tax threshold for the 2012/2013 tax year is £325,000.


Referring to an activity which is conducted within an organisation rather than contracted out to an external party.


Initial charge

A charge made by an investment provider when you first take out an investment. This is to cover the cost of setting up the investment.

Initial price

This refers to the range of Skandia pension funds where the pricing includes an initial charge within the offer (buying) price.

Initial Public Offering

(IPO) The first sale of shares of a company to the public.

Insider trading

The illegal practice of trading in securities on the basis of 'inside' or secret information which is not available to the public at large.

Insurance bond

A single premium life assurance policy that allows you to invest in a variety of funds. Normally designed to produce long term capital growth, but can be used to generate an income.

Insurance premium tax

A tax levied on most non-life insurance policies.


A person covered by an insurance policy.


A company that offers an insurance policy.


The return earned on funds which have been loaned or invested (ie the amount a borrower pays to a lender for the use of his/her money).

Interest coverage

A measure of a company’s ability to meet its interest obligations, calculated by dividing interest payments into income. The higher the ratio the better.

Interest rate

The amount of money a customer can earn on an investment. It is usually expressed as a percentage of the total sum invested.

Interest rate risk

The risk borne by fixed interest securities, and by borrowers with floating rate loans, when interest rates fluctuate. When interest rates rise, the market value of fixed interest securities declines and vice versa.

Interest rate sensitivity

The degree of movement in the price of a security, usually that of a bond, resulting from moves in interest rates.

International Monetary Fund (IMF)

An international organisation founded in 1947 to promote maintenance of equilibrium in the balance of payments among the various nations of the world. The functions of the IMF include the levying of quotas on member nations to create a pool of funds available to be loaned to nations facing balance of payments problems.

Inter-spouse transfers

A tax-free transfer between husband and wife or between civil partners under Inheritance Tax rules.


A person who dies without a valid will.


An asset acquired for the purpose of producing income and/or capital gains for its owner.

Investment analyst

A financial expert trained to analyse the activities and future prospects and earnings of companies and securities for the purpose of investment.

Investment company

A company whose main business consists of specific activities relating to investments. For example stockbrokers and investment fund managers.

Investment environment

The general economic, political, legal and market conditions within which an investment is made.

Investment Grade Bonds

Bonds which have a credit rating which is sufficient for them to be purchased by most institutional investors.

Investment Management Agreement

A contractual agreement between an investor and an investment manager which states the terms and conditions applying to management of the stated assets.

Investment Management Regulatory Agreement (IMRO)

A regulatory organisation for the UK investment management industry.


Investment manager

An organisation or individual that specialises in the investment of a portfolio of securities on behalf of individuals and/or organisations, subject to the guidelines and directions of the investor.

Investment philosophy

The set of principles or systems used by investors to govern the way they manage portfolios. Sometimes confused with investment style, which tends to be more associated with the level of risk in the portfolio.

Investment trust

A company that invests in shares of other companies. When investing in an investment trust customers actually own shares in the investment trust rather than owning the shares it invests in. Investment trusts are closed-ended investment vechicles.


A person whose principal purpose is to invest money prudently and productively over the longer term with the objective of achieving a reasonable return relative to the investment risk involved The opposite of a Speculator, who will sacrifice safety of principal for the possibility of larger gains.


ISA Individual Savings Account

A savings vehicle that allows customers to invest in equities, life assurance policies, or save in cash, without having to pay tax on the returns gained from them.

Joint life

A life policy option, where life assurance is taken out by one (or more) individuals, and payout is made on the death of the first life assured or the last remaining life assured.

Joint life first death

Where a bond ends on the earlier of full encashment, or the death of one of the lives assured.

Joint life last death

Where a bond ends on the earlier of full encashment, or death of the last remaining life assured.

Junk bond

A high risk, high yield debt security rated below investment grade at the time of purchase.

Key Features Document

A document containing key information on a financial product, such as its aims, commitment and risks involved, an explanation of the charges, what the policy might be worth in future years, as well as answers to some of the most common questions asked.

Key person insurance

A life assurance policy to cover the death of a business’s key employee. It pays out a lump sum that is designed to cover the costs of finding and training a replacement, as well as covering any loss of profitability.

Launch date

The inception date of a fund.

Level term assurance

A simple form of life assurance that pays out a lump sum if the policy holder dies within a specified time period.


A synonym for gearing (eg using derivative investments to over-invest a portfolio).


The opposite of assets – ie debts. In the case of pension funds, a stream of obligations (pension payments).


LIBOR stands for London Interbank Offered Rate. It is the rate of interest at which banks offer to lend money to one another in the wholesale money markets.

Life assurance

An insurance policy which pays out a lump sum on the death of the policy holder.

Life assured

The life assured is the person (or persons) covered by the life insurance contract that has been taken out with the life company. You can take out life insurance on your own life or the life of other individuals such as your spouse or business partner, provided you can show that you have a financial interest in them.

It is also possible in these circumstances to take out a joint life policy of which there are two main types; a joint-life first-death policy which pays out on the first death of one of the lives assured; and a joint-life last-survivor policy pays out on the death of the last of the lives assured.

Life company

Life assurance is a contract between an insurance company (the life company) and an individual(s), where the insurance company pays out, in return for premiums paid, if the insured person dies before the end of the contract.

Life fund

A pool of money held by a life company into which all life assurance policy holders’ premiums are paid and all claims are made from.

Lipper Asset Allocation Analysis Models

Lipper Models are based on Lipper's Asset Allocation Analysis process. This Asset Allocation Analysis (AAA) provides a monthly peer survey, covering in excess of 2,800 life and pension and unit trusts, detailing their investment mix and geographical asset allocation.

Liquid market

A market where selling and buying can be accomplished with ease, due to the presence of a large number of interested buyers and sellers willing and able to trade substantial quantities at small price differences.


The ability of an investment to be easily converted into cash with little or no loss of capital and with minimum delay.

Liquidity risk

The risk that an investment may not be easily converted into cash with little or no loss of capital and with minimum delay.

Listed company

A company whose shares are traded on the stock exchange and are able to be bought and sold by members of the general public.

Listed security

A share which is quoted on a stock exchange.

Loan stock

A security bearing a fixed rate of interest. The capital (the amount loaned) is repaid after a given period of time.

Long term care bonds

An investment bond designed to cover the costs of care in old age. It can be used to cover residential home costs as well as expenses incurred when care takes place within the home.

Long/long position

In relation to foreign exchange and share trading, referring to an ownership position in which the trader has bought more of a particular security than he or she has sold.

Loss adjuster

A person independent of the insurance company, but paid by it, who is responsible for checking that the claim is covered under the policy and negotiates the amount paid with the policy holder.

Lower earnings limit

The minimum amount which must be earned in any pay period before National Insurance becomes payable.


Economic analysis concerning broad trends and influences on the economy, such as the interaction of fiscal and monetary policies, GDP, balance of payments etc. As opposed to Microeconomics which focuses on individual units such as companies and markets to assess their influence on the economy.

Managed fund

Managed funds are generally made up of a spread of other specialist funds so spreading the risk.


The agreed objectives given by an investor to his or her investment manager, often including a benchmark, guidelines as to sector exposures and prohibited investments.

Marginal tax rate

The additional tax which someone pays on each £1 increase of their taxable income.

Market capitalisation

The sum of the total amount of various securities issued by a corporation, multiplied by the current market price of those securities.

Market cycle

A business cycle concerned specifically with rises and falls in market activity, as measured by an index.

Market Level Indicator

An index comparing the values of fixed interest securities and shares, used in determining state scheme premiums.

Market price

With reference to a security, the last reported price at which the security sold. Alternatively, the highest price which a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Market risk

Risk that relates to the market as a whole and therefore cannot be diversified away simply by holding a greater variety of securities. See also systematic risk.

Market timing

The purchase or sale of securities on the basis of shorter-term price patterns and temporary market opportunities,as well as judgements of underlying value.

Market value

The value of an asset to a third party on the open market.

Market Value Reduction (adjustment)

If you take money out of a with-profits fund, an adjustment may be made to the value of the withdrawal if the value of the underlying assets is less than the value of your plan including bonuses. This adjustment is known as a market value reduction.


The arrangement of assets, and the return from those assets, to meet future liabilities and obligations.


The date on which a loan, bond, mortgage, life policy, or other debt or security is due to be repaid.

Maximum contributions

Pension contracts have maximum contribution levels. The levels are set by HM Revenue & Customs because tax relief is available on these contributions.

Maximum gain

The maximum gain represents the best possible return, over a minimum of three months within the performance period.

Maximum loss

The maximum loss represents the worst possible return, over a minimum of three months within the performance period.


The median is always the middle value, as distinct from the mean, which represents the average value. For example, if five items cost £20, £80, £100, £300 and £500 respectively, the median value would be £100, whereas the mean or average would be £200.


A person who has been admitted to membership of a pension scheme and is entitled to benefits under the scheme.

Member choice

A facility made available to the members of a defined contribution fund allowing them to decide the proportion of funds to be allocated between high and low risk investment strategies, sectors and/or managers. Typically, a fund with a member choice facility will allow members the opportunity to switch between investment options at certain intervals.


Economic analysis dealing with individual companies or markets and their impact on the economy, as opposed to macroeconomics which focuses on broader influences and trends.

Middle band earnings

Earnings between the lower earnings limit and upper earnings limit.

Minimum contributions

Contributions payable to an appropriate personal pension or stakeholder pension by HM Revenue & Customs in respect of a member who has contracted out of SERPS (State Earnings-Related Pension Scheme) or the State Second Pension. This could also refer to minimum contribution levels that can be paid into a financial product.

Minimum Income Guarantee (MIG)

A means-tested benefit that helps individuals on low incomes at retirement. If you apply, the Department of Work and Pensions assesses your income and decides whether you are eligible for a top-up.


The tendency of an asset price to keep moving in the same direction, either upwards or downwards.

Money market

The market for trade in short-term securities such as Bills of Exchange, Promissory Notes and Government and Semi-Government bonds. Participants in the money market include banks and other financial institutions, life offices, stockbrokers, pension funds and Government authorities. See also capital markets.

Money purchase schemes

An occupational pension scheme where the contributions made by the employer and employee are set and the final pension an employee receives depends on the size of their fund on retirement. This final fund is then used to buy an annuity. Also referred to as defined contribution schemes.


American credit rating organisation – operates in similar fashion to Standard & Poor‘s.

Mortgage indemnity insurance

Insurance that covers the mortgage lender, in the event that the property is repossessed and its value when sold does not cover the remaining loan.

MSCI Index

Morgan Stanley Capital International Index.

A series of country indexes of equity prices. The MSCI World Index is one standard for comparisons of international equity performance, although there are others, including the Frank Russell and Financial Times indices.


Multi-manager is a means of investing where you can access a wide range of different fund managers through a single investment product.

Mutual fund

An American term for certain forms of collective investments. A mutual fund is a professionally managed scheme that pools money from many investors and invests typically in funds, other securities (stocks, bonds, short-term money market instruments), other mutual funds, other securities, and/or commodities.

National Insurance Contributions

A payment made by most employers, employees, self-employed (and some unemployed) people to the government to fund such things as national healthcare and education. For the employed it is deducted from income by the employer on a scale related to income levels. The employed pay part flat rate, part income-related. The self-employed and the unemployed may pay a flat-rate voluntary contribution to keep their benefits entitlement up to date.

National Savings

The total level of savings, defined as the income remaining after consumption, of a country’s households.

Negative periods

The number of months over the last 12 months that a fund has reduced in value.

Negative screening

Negative screening is the most commonly recognised strategy. It means not investing in companies that do not meet the ethical standards by which the fund is run. For example, not investing in tobacco or defence companies.

Negotiable instrument

A piece of paper representing ownership of a financial asset or debt, and capable of being traded in the money market (eg Bill of Exchange, Promissory Notes).


Interest received on a savings account after tax has been deducted. This term also applies to premiums paid net of tax relief.

Net asset value (NAV)

The valuation of a collective investment based on the market value of securities added to the cash element held in its portfolio.

Net interest

Interest received on a savings account after tax has been deducted.

Net present value (NPV)

The current value of a stream of income discounted by a factor (usually inflation) over the period of an investment.

Net relevant earnings

Net relevant earnings are used to determine the maximum contributions to a retirement annuity, personal pension or stakeholder pension. They are your relevant earnings less allowances deductible for tax in relation to business purposes and any losses from business.

New issue

Any type of security issued to raise additional money. Offerings are made to existing shareholders, through rights issues or entitlements and/or to non-shareholders.


National Insurance Contributions Office.

Nil rate band

Refers to the ceiling on earnings for income tax purposes, under which no tax is payable.

No claims bonus

A reduction in an insurance premium because the customer has a claim-free record.

Nominal value

The face value of something eg a share issue.


An individual or company in whose name a security is registered to be owned, although the real (or beneficial) ownership is actually held by another party. Nominee companies are often used by share investors who for some reason wish their identities to remain undisclosed or who simply require another party to manage (or hold as custodian) their investments.

Non contributory pension

An occupational pension where the employee does not make any type of contribution. It is entirely funded by the employer.

Normal retirement date

Refers to the date when benefits can normally be taken from a pension scheme, as defined in the rules of the plan.

Not contracted out

Someone who has not contracted out of the State Second Pension.

OBSR Ratings

Fund ratings awarded are AAA, AA or A.
There are several key factors which lead to the final OBSR Rating determination. These are: Strength of investment process and length of time it has been in place; Continuity of investment personnel; Investment style that has proven durable over time; Clearly defined investment objectives; Strong and consistent past performance record.

Occupational pension scheme

A pension scheme provided by an employer for its employees. Occupational pension schemes are mainly 'defined benefit' or 'defined contribution'.

Off balance sheet

Referring to financial commitments or liabilities that do not generally appear in a company’s balance sheet (eg operating leases or derivative contracts).

Off market

Relating to a transaction which occurs outside a formal market eg transactions in unlisted securities or transactions involving listed shares which were not executed on a stock exchange. Off market transactions are conducted through negotiation rather than an 'auction' system.


The price at which a person or company is willing to sell (Also known as ask price). For example, a seller will present their stock for sale at the offer price. As a buyer, you will buy at the offer (or ask) price.

Offer to bid

Compares the original purchase cost or offer price (usually of a unit trust) with its bid price, the price you receive if you sell.

Offer to offer

Compares the original purchase cost or offer price (usually of a unit trust) with its current offer price.


Anywhere outside the UK not within the authority of HM Revenue & Customs.

Offshore sector

The group of funds all registered outside the UK.


See Financial Ombudsman.

Open ended investment company (OEIC)

An OEIC is an investment company where shares can be created or cancelled to match demand, in a way similar to the units of a unit trust. The principal difference lies in the fact that there is a 'single price' to which is added the initial charge for purchase, as opposed to unit trusts which always have two prices, the bid price (what you get when you sell back to the managers); and the offer price (what you have to pay when you buy).

Open market option

An option to move the value of your pension fund at retirement to an insurance company to purchase a pension income known as an annuity. Normally used to gain a higher annuity rate.

Opening price

The price at which a security commences trading at the opening of a trading day.


Occupational Pensions Regulatory Authority.

The authority set up under the Pensions Act 1995 to make occupational pensions more secure. This organisation closed in 2005 when its responsibilities were taken over by the Pensions Regulator, the new regulatory body for work-based pension schemes in the UK.


A mathematical process which creates a compromise between conflicting objectives (eg between maximising return and minimising risk). An optimisation program will identify the asset mix which is likely to give the highest return for a given risk level, or alternatively, the lowest risk portfolio to achieve a desired return. See also portfolio optimisation.


An agreement which conveys the right to the holder to buy (receive) or sell (deliver) a specific security at a stipulated price and within a stated period of time. If the option is not exercised during that time, the money paid for it (but no more than that amount) is forfeited. See also call option.

Ordinary residence

For the purposes of taxation an individual may be ordinarily resident in the UK although he or she is not physically resident in a particular tax year. The term ‘ordinary residence ‘is broadly equivalent to habitual residence. If an individual is a resident in the UK year after year, he or she is ordinarily resident here and liable for UK tax.

Ordinary shares

Securities which represent an ownership interest in a company. If the company has also issued preference shares, both have ownership rights. The preference shareholder normally is limited to a fixed dividend, but has prior claim on dividends and, in the event of liquidation, assets. Ordinary shareholders assume the greater risk, but generally exercise the greater control and may gain the greater reward in the form of dividends and capital appreciation. If the company is wound up, the ordinary shareholders generally rank behind secured creditors, including debenture holders, in the liquidation process.


Achievement of a higher investment return than a benchmark or other measure against which that return is being compared. For example an equity fund would be said to have outperformed the index if the fund achieved a 5% return against a 3% return by the index over the same period (As opposed to underperformance).


Where a pension arrangement has assets which exceed those required to meet its liabilities.


Having a greater exposure to a particular sector or stock in an investment portfolio compared with a neutral or benchmark position (As opposed to underweight).

Package trade

A transaction involving the purchase and/or sale of an entire portfolio or basket of securities rather than individual securities alone.

Paid-up benefits

A preserved benefit which is secured for an individual member of a pension scheme or the policyholder of a life assurance policy, where premiums have ceased to be payable in respect of that member.

Passive management

An investment approach which aims to mirror or ‘track’ the performance of a financial index. This is normally done by either investing in the exact constituents of an index or by taking a representative ‘sample’ of that index. The managers of such funds have lower expenses than active fund managers, and the charges to investors are therefore lower.

Penny shares

Term used to describe shares with a low value, usually under £1 per share; very often high-risk shares.


A regular income paid to a person after they have retired. Also used to describe a plan or scheme that is set up to provide a pension or other retirement benefits.

Pension annuity

An insurance policy that pays out an income during retirement. The annuity is bought with savings made before retirement eg from a personal pension or occupational pension scheme. This can also be known as a compulsory purchase annuity.

Pension fund

General term used to describe the investment fund built up in a pension plan and used at retirement to purchase an annuity to provide a continuing income.

Pension transfers

Refers to the current value of a pension plan that can be transferred from one approved scheme to another approved scheme. The value is transferred direct from one employer or pension provider to another.

Pensionable earnings

Earnings on which benefits and contributions in a pension scheme are calculated.

Pensionable service

Period of service with a company that is used in the calculation of pension benefits.

Pensioneer trustee

An independent, professionally recognised trustee. It is a mandatory requirement for a small self-administered pension scheme to have one.

Pensions Ombudsman

The Pensions Ombudsman deals with disputes about entitlement and complaints about maladministration from members of occupational pension schemes and personal pension schemes. The Ombudsman’s role also includes investigating complaints between trustees of occupational pension schemes and employers, and between trustees of different occupational pension schemes, or between trustees of the same scheme.


A statistical measure representing the ranking of a particular figure or outcome on a scale comprising 100 equal groups. See also quartile.

Performance management

A form of analysis that attempts to compare investment managers performance. Measurement should include: analysis of performance over a business cycle (typically 3-5 years) and assessment of returns on a quarterly basis, ideally by sectors as well as total returns; ensuring that like is being compared with like – the best way to do this is to look at each manager’s benchmark, or risk profile, and compare performance against the benchmark, preferably on a sector basis; and analysis of the reason for any extreme out-or-under performance in a given period (eg whether a large overweight position exists in one or a few securities or a sector).

Performance since launch

The performance of an investment or fund since inception to the given date.

Performance to date

The performance of an investment over a given period of time calculated to the most recent update date.


A measure of how long a policy holder keeps their policy with an insurer.

Personal allowance

The level of income above which income tax starts to be levied.

Personal Equity Plan (PEP)

Introduced in 1987 and designed to promote saving by UK investors who are 18 or over. A limited amount could be invested each year. Personal Equity Plans (PEPs) are simple, flexible investment plans which invest in the stockmarket and benefit from special tax advantages. There is no minimum or maximum period for which investments must be held. These plans were replaced by ISAs from April 1999, but existing PEPs can remain in force.

Personal pension plan

An arrangement, often in the form of a policy from a life insurance company, under which individuals can make contributions without the need for employer contribution.


A document giving all of the details of the agreement between the insured and the insurer.

Policy conditions

The ‘small print‘ of a policy, which sets out the rights and responsibilities of the parties involved.

Policy fee

Generally an administration fee usually charged monthly or annually.


Generally taken to mean the owner of the policy.

Political risk

The uncertainty in return on a foreign investment due to the possibility that the foreign government might take actions which are detrimental to the investor’s interests.

Pooled investments

Any form of investment in which a number of individuals place their money with a professional manager to manage the total fund on their behalf and produce a return to them individually. Also known as collective investment.


The collection of investment holdings of a particular investor usually with reference to its composition ie the mix of different classes of securities, such as bonds, property, shares and cash, or if in a single asset class, the mix of different sectors and stocks.

Portfolio construction

The process of identifying which asset classes to invest in, and in what proportions.

Portfolio manager

A person or organisation engaged to manage investment portfolios and make investment decisions on behalf of others. Also known as an investment manager.

Portfolio optimisation

The process of selecting an investment portfolio that minimises risk for a given level of return, taking account of a) expected return; b) variances of expected return; and c) covariance of return with every other security under consideration.


The total of an option trader’s open contracts in a particular underlying security. For example, a purchaser of a futures contract has a long position, while a seller of a futures contract has a short position.

Positive periods

The number of months over the last 12 months that a fund has grown in value.

Positive screening

A positive screening strategy means a fund will seek to invest in those companies with a commitment to responsible business practices, positive products and/or services.

Potentially exempt transfer

Gifts on which Inheritance Tax will not be payable unless the donor dies within seven years.

Pound cost averaging

The term used to describe the effect of paying a fixed regular amount into a unitised investment fund where the value of units fluctuates. The amount will purchase more units when prices are low and vice versa. Over the longer-term, the average cost per unit is likely to be lower than the average unit price over the period.

Power of attorney

A legal document whereby one person (the 'Donor') gives another person or persons (the 'attorney') the power to act on his or her behalf with regard to his or her property and financial affairs.

Preference shares

Shares which rank before ordinary shares in the event of liquidation of the issuing company and usually receiving a fixed rate of return on the investment. See also ordinary shares.


The amount of money an individual pays into a saving or investment product, as either a lump sum or a regular payment.

Premium frequency

How often the premium is paid, eg monthly or annually.

Present value

The current value of an investment which matures in the future, after discounting the maturity at an assumed rate of interest and adjusting for the probability of its payment or receipt.

Preserved benefits

When leaving employment after at least two years as a member of an occupational pension scheme, pension benefits accrued to date must be preserved within the scheme or transferred to another pension scheme. If less than two years' service, members of the pension scheme can take a refund of any personal contributions, less certain deductions.

Price series

A fund may have a number of price series assigned to it. Each one will generally have a different charging structure which will give rise to different prices over a period of time.

Price-earnings ratio (PR)

A stock’s market price divided by its current or estimated future earnings per share; a fundamental measure of the attractiveness of a particular security versus all other securities as determined by the investing public. The lower the ratio relative to the average of the stockmarket, the lower the (market’s) profit growth expectations. Also called earnings multiple.

Primary market

The market in which securities are sold at the time they are first issued. (As opposed to secondary market).

Private sector

The part of the economy owned/operated by corporations and individuals outside the public sector. Split by economists into households and business.


The alteration of the legal and management structure of a Government trading body (eg a statutory authority) to permit private equity or ownership.

Profit and loss account

A financial statement showing the earnings and expenses of a company over a given reporting period (as distinct from a balance sheet, which shows the company’s assets and liabilities at a set point in time).

Program trading

A synonym for index arbitrage, or for package trading.


In the finance industry, the term refers to real estate including land and buildings that can be bought, sold or leased.

Protection overlay

A portfolio management technique whereby an investment manager aims to protect the capital value of a portfolio through risk management techniques, such as dynamic hedging.


A written authorisation given by a shareholder to someone else to vote his or her shares at a shareholder’s meeting. Fund management agreements often delegate the authority to the investment manager to exercise proxy votes on behalf of the client. See also corporate governance.

Public sector

The part of the economy which is made up of Government enterprises, activities and public service departments such as health, education, transport and defence. See also private sector.

Purchased life annuity

An annuity bought with private savings (not pension savings). Part of the annuity is deemed to be interest paid on the capital and is taxed. The other part is considered to be a return of capital and so escapes tax.

Put option

An option giving its purchaser the right, without the obligation, to sell an asset at a specified price (the exercise price) at any time between the purchase of the option and its expiry date. See also call option.

Qualifying policy

A policy which pays out its proceeds free from personal taxation. In order to qualify it needs to adhere to certain qualifying rules.

Quantitative management

An approach to investment management which seeks to use statistical or numerical methods to create efficient portfolios, with the optimum risk/return trade-off. Quantitative managers generally attempt to add value by exploiting pricing anomalies, or by providing particular levels of risk control, rather than by subjective forecasting of market behaviour.


The division of a spread of values divided into four. A statistical division generally used in financial services to denote performance of, say, a particular type of fund. Comparisons of similar funds are shown in a league table, which is divided into four quarters or quartiles.


A brisk rise following a decline in the general price level of the market or an individual share.


The difference between the highest and lowest prices recorded during a given trading period: week, month, year etc.

Rate of return

The yield earned in relation to a capital amount invested.

Real estate

Property in land, building or housing, as distinct from personal property (eg cars); also known as physical property to distinguish itself from property trusts.

Real interest rate

The nominal interest rate less the prevailing rate of inflation.

Real return

An inflation-adjusted return.


To sell an asset (usually when it appears to have appreciated to the maximum extent that can be reasonably expected).


The return of a proportion of a payment which effectively reduces the total outlay or obligation.

Redemption fee

A fee charged for the redemption (ie withdrawal/cashing in) of units in a unit trust. Also known as back-end load.

Redemption penalties

A penalty that has to be paid when a customer decides to move lender. Usually they apply within the term of a fixed rate, capped or discounted mortgage.

Redemption yield

The redemption yield shows what the total return on a bond would be if held to its maturity date. It reflects not only the interest payments a bondholder will receive, but also the gain/loss he will make when it matures.

Reduced allocation

Method of recouping initial expenses when setting up a unit-linked policy, whereby only a proportion of the investment is allocated to the policy for the first few years.

Reduction in yield

The amount by which an insurance company‘s charges can be expected to reduce the investment return on a policy.


Restoration of deflated prices to a desirable level. When Governments reflate, additional money is printed, adding to the supply of money in circulation.


The proportion of a company’s profit not distributed to shareholders as dividends, or an account kept aside by the trustees of a pension fund to cover declines in asset values or investment returns.

Retail Price Index (known as RPI)

A monthly indication of the average price changes to a particular ‘basket’ of consumer goods, and used as a general indicator of price inflation.

Retained benefits

Pension benefits earned in previous employment that are taken into account when determining HM Revenue & Customs limits for a member of an occupational pension scheme.

Retirement annuity

An annuity contract offered by insurance companies for individuals not in pensionable employment or the self employed approved under Chapter II part XIV of ICTA 88.

Retirement date

This is the date that you choose to retire at.


The amount of money, in income and capital growth, received annually from an investment, usually expressed as a percentage.


In its simplest sense, risk is the variability of returns. Investments with greater inherent risk must provide higher expected yields if investors are to be attracted to them. Risk can take many forms, but a major one is valuation risk – paying too much for an asset. See also currency risk, exchange rate risk, market risk, political risk, volatility.

Risk Evaluator

The Risk Evaluator is a tool provided by Skandia which compares the volatility of fund sectors. The sectors have been arranged in ascending order according to their volatility numbers which have been calculated over 5 years and the entire range has been divided into ten segments, each representing 10% of the range with 1 being least volatile and 10 being most volatile. The sectors have been placed into the relevant segment, depending on where their volatility numbers fall. Each segment has been colour coded to represent the risk associated with each sector.

Risk management

The monitoring and controlling of various risk factors in an investment portfolio with the aim of minimising volatility of investment returns.

Risk premium

The extra yield over the risk free rate demanded by investors to compensate them for holding a riskier asset. This is an extremely important concept in relation to setting a long-term asset mix. See equity risk premium.

Risk return

Risk is a measure of the variability of return. Return, in financial terms, represents the profit - in the form of income and capital appreciation on an investment. The Risk / Return trade off is how much an investor is willing to accept greater risk in order to pursue greater returns. The optimum position is the top left hand corner of the matrix, which represents the highest return and the lowest risk.

Risk-free asset

An investment with no chance of default, and a known or certain rate of return.

Roll-over relief

A tax concession, which allows investors and businesses to defer the payment of Capital Gains Tax. For example, if proceeds from the sale of a fixed asset are reinvested, Capital Gains Tax is not payable until the new asset is sold.

Roll-up funds

An offshore investment fund that does not distribute its dividends.

Running yield

Equal to the annual income payable on a bond as a percentage of its current market price.

S & P 500

A United States stockmarket index, maintained by Standard & Poors.


State Second Pension.

Salary sacrifice

A tax-efficient method of increasing the money paid into a pension scheme by giving up existing salary or proposed salary increases, so that the sum foregone can be used as an additional company contribution into a pension scheme.

Satellite funds

These funds are often used to complement the Core Funds in an investor’s portfolio. They tend to be more specialised and have a higher risk/return profile. 


A graph illustrating the annualised risk and return performance of a fund or investment manager for a specific period (greater than one year). Risk is measured by standard deviation on the horizontal axis with return on the vertical axis. A point of risk and return for each fund or investment manager is plotted, creating a number of scattered points.


Examination of various securities, usually through computer models, to identify certain predetermined factors such as valuations, earnings, liquidity, etc, with a view to the inclusion of those securities in an investment portfolio.

Secondary market

Any market in which existing securities are traded (as distinct from the primary market, in which securities are first issued). The Stock Exchange is the secondary market for share trading.

Section 226 (Retirement Annuity)

Prior to 1 July 1988, people not in pensionable employment (employment where no pension scheme exists) or people who were self-employed, were able to qualify for tax relief for contributions made to a pension scheme known as a Retirement Annuity under Section 226 of the Income and Corporation Taxes Act 1970. This was the forerunner to the Personal Pension Scheme.

Section 32

Used widely to describe a buy out bond issued under Section 591 (2) (g) of ICTA 88.


A sector is a grouping of funds with a similar investment objective and make up.

An area of the economy where businesses share the same or a related product or service, for example, pharmaceuticals, telecommunications or retail.

Sector averages

Sector averages denote the average performance of all funds within a particular sector. Sectors are governed by the Association of British Insurers for life and pension funds and by the Investment Management Association (IMA).

Sector index

Sector performance takes into account the contributions of all existing funds the sector comprises of and is therefore referred to as the 'sector index'.

The sector index performance may not match the straight average of the existing sector members, as the latter will not take into account the performance of new funds which have entered the sector during the nominated performance period and which would have affected the sector index performance. Over a long period these differences will be cumulative, resulting in wider divergence between the sector index and the straight sector average. 

Sector risk number

These numbers are used to compare the volatility of fund sectors. The sectors have been arranged in ascending order according to their volatility numbers which have been calculated over 5 years and the entire range has been divided into ten segments, each representing 10% of the range with 1 being least volatile and 10 being most volatile.


A term used to describe stocks and shares.


In relation to financial markets, the paper right to a (generally tradable) asset. In this context the term includes Bills of Exchange, bonds, share certificates or any other interest-bearing paper traded on financial markets; An asset pledged to ensure the repayment of a financial obligation (eg loan), and forfeited in the event of a default on that obligation.

Segregated fund

Pension scheme investments managed along side, but separately from, other investments under control of a particular manager.

Seller’s market

A condition of the market in which there is a scarcity of goods available, and hence, sellers can obtain better conditions for sale or higher prices. (As opposed to buyer’s market).

Selling (bid) price

The price at which you can sell shares or units in a unit trust or units in a life policy.


State Earnings-Related Pension Scheme.
The Government introduced SERPS in 1978 as an earnings-related top-up to the basic state pension. It was replaced with the State Second Pension in April 2002. Whether you are entitled to SERPS depends on your earnings while you were in employment and the National Insurance contributions you and your employers paid; therefore self-employed do not qualify for this pension.


In relation to share trading, an arrangement between brokerage houses for the payment or receipt of cash or securities. It represents the final consummation of a securities transaction and is handled through a clearing house.

Settlement date

The date on which the final consummation of a securities transaction takes place and payment is made.

Settlement risk

In relation to foreign exchange transactions, the exposure of one party to another on the value date of the contract. It is the risk that one party, having received settlement of one currency amount from the counterparty, is unable to effect settlement of the other currency amount.

SFC recognised

Indicates that a fund is regulated by the Securities and Futures Commission of Hong Kong.


The ownership of part of a company; a contract between the issuing company and the owner of the share which gives the latter an interest in the management of the corporation, the right to participate in profits and, if the company is dissolved, a claim upon assets remaining when all debts have been paid. See also equity.

Share capital

The money paid (subscribed) for ordinary and preference shares in a limited company. Authorised share capital means the total amount of shares available to be issued. Issued share capital relates to the total amount of shares actually subscribed for.

Share certificate

A piece of paper representing legal evidence of ownership of a stipulated number of shares in a company. Also known as scrip.

Share exchange

Owners of unit trusts may use shares they already own to make an investment without having to sell them first. This saves dealing charges.

Share holder

The owner of one or more issued shares of a company who is normally entitled to: a proportionate share of the issuing company’s undivided assets; dividends when declared by the directors; and the right of proportionate voting power.

Share option

An offer by a company, usually to its employees and directors, to buy its Shares at a given price, before a specified date. A number of approved share option schemes offer tax-free capital growth.

Share Price Index

An index measuring movements in the price of shares, but not of their dividends (as opposed to an Accumulation Index, which measures movements in both price and dividend income).

Share register

A register recording all of a company’s shareholders and the number of shares they each hold.


Sold by a company to raise money. Shares give the owners an interest in the company and a right to share in the profits.

Sharpe Ratio

A statistical measure which attempts to show the performance of a portfolio’s return in risk adjusted terms. It is calculated by dividing the portfolio’s excess return over the risk-free rate by the risk (ie standard deviation) of portfolio returns. The higher the Sharpe Ratio, the better the portfolio’s return in risk adjusted terms. A Sharpe Ratio higher than one can be considered to be very good, while a ratio below 0.1 shows that the portfolio has been poorly rewarded for the risk undertaken.

Short position

An excess of sales over purchases of a relevant commodity, currency or investment instrument (As opposed to long position).

Short selling

The sale of a security that is not yet owned, in the expectation that its price will fall so that it can be bought back at a later date.


Bonds or Gilts that have a redemption date within five years. Some institutions use seven years as the cut-off date.

Single life pension

A pension that is paid for the lifetime of the policy holder only.

Single premium

A one off payment into an insurance policy or pension.

Single price

This refers to the range of Skandia pension funds where the pricing does not include an initial charge, and hence buying and selling takes place at the same single price of the fund.

Single pricing

Single pricing means that there is just one price for both buyers and sellers of the units or shares. This contrasts with dual pricing where there is one price for sellers and a higher price for buyers, sometimes known as a bid/offer spread.

Small gifts exemption

An annual Inheritance Tax (IHT) allowance, enabling a donor to give up to £250 per year to any number of separate individuals (donees).

Smaller companies

Generally, companies with a market capitalisation of less than US$1 billion or the bottom 25% of the market, although definitions differ.

Soft Dollars

Payment for research-related services by commissions generated from trading rather than fees.

Specialist manager

An investment manager which confines its investment activity to specific asset classes (eg equities, fixed interest, property, overseas shares, etc.) instead of (or as well as) balanced funds. See also balanced manager.

Specific risk

Uncertainty in the return of a share arising from factors specific to the company concerned. It is unrelated, or, at most, distantly related, to events that impact on other comparable firms or the market as a whole. Unlike market risk, specific risk can be diversified away.


In relation to share, bond and currency markets, spread is the difference between the bid price and the ask (offer) price, incorporating both an estimate of demand and potential profit for the seller. In relation to unit trusts, spread is the difference between the allocation of redemption price of units, as a result of transaction costs incurred in buying and selling the underlying securities which make up the value of the trust. In relation to option markets, spread is the holding of a long position and an offsetting short position, usually in contracts with the same underlying security or asset.


An investor in the share market who aims for quick gains by subscribing to new share issues and then selling once the shares commence trading on the exchange.

Stakeholder pension

Stakeholder pensions were introduced from 6 April 2001. The Government has laid down minimum standards to ensure that all stakeholder pensions meet the same basic criteria for payments, costs and terms.

Stamp duty

A flat rate tax on the purchase of shares, at 0.5% of their value. On the purchase of property (until 31 December 2012) there is no duty up to £125,000. From £125,000 to £250,000 the duty is 1%, and rises to 3% of the value on properties sold for £250,00 to £500,000, and 4% above £500,000.

Standard & Poor's (S&P)

A credit rating organisation.

Standard deviation

A statistical measure of the dispersion of a set of numbers around a central point. If the standard deviation is small, the frequency of distribution is concentrated within a narrow range of values. For a 'normal' distribution, about two thirds of the observations will fall within one standard deviation of the mean. Standard deviation is a commonly used measure of risk because the higher the standard deviation the higher the uncertainty of the return. As standard deviation measures the volatility of investment returns, it is an important measure of risk. Also known as standard error.

State Earnings-Related Pension Scheme (SERPS)

State Earnings-Related Pension Scheme.
The Government introduced SERPS in 1978 as an earnings-related top-up to the basic state pension. It was replaced with the State Second Pension in April 2002. Whether you are entitled to SERPS depends on your earnings while you were in employment and the National Insurance contributions you and your employers paid; therefore self-employed do not qualify for this pension.

State pension schemes

Basic state pension – if you have a full National Insurance contribution record you are entitled to the full basic state pension.

State pensionable age

Fixed retirement ages for men and women, currently 65 and 60 respectively. To be equalised to 65 for men and women, by April 2020 (with ten years ‘phasing-in from 2010). This is the age at which state benefits may be taken as pension income.

State Second Pension (S2P)

This replaced SERPS in April 2002. The State Second Pension is paid in addition to the Basic State Pension.


A generic term for equities (shares) and, less frequently, bonds. See also Security.

Stock broker

A professional person who buys and sells securities on behalf of others in return for a commission (or brokerage).

Stock exchange

A market where stocks and shares are bought and sold.

Stock market

A place where shares or other securities are bought and sold e.g. the London Stock Exchange.

Stock selection

The selection of an individual security within an asset class. For example, stock selection in relation to equity investments is made after analysing the financial standing, future earnings prospects and valuation of the shares of the company concerned. Along with asset allocation, stock selection is a key way in which investment managers add value.


Agents who buy and sell stocks and shares for customers.

Stocks and shares

A stock generally refers to fixed interest securities, usually issued in denominations of £100. Shares are sold by a company to raise money. Shares give the owners an interest in the company and a right to a share in the profits.

Strategic asset allocation

The composition of the asset mix within a portfolio, constructed with the objective of meeting the long-term views of relative performance of the various asset classes. Usually a benchmark is derived in this fashion. See also asset allocation, tactical asset allocation.


An agreement to purchase a certain offering, eg a certain number of shares for a stipulated price.


A company which is wholly or partly owned by another company but which (unlike a branch office) is still a distinct legal entity responsible for its own tax, regulatory compliance, etc.

Sum assured

The guaranteed amount paid on death or maturity under a life assurance policy.

Sum insured

For non-life insurance it is the maximum amount the insurance company will pay out for a claim. For life assurance it is the amount that is guaranteed to be paid on death.


A means of setting aside funds during working life for use as retirement income, under a regulatory system which provides certain taxation incentives and prudential controls for the benefit of contributors. See also pension.

Surrender value

The amount of money that will be paid to a policy holder if they discontinue a policy before it matures. The benefits the customer usually receives are reduced because of the effects of the charges.


An interest rate, currency or equity exchange transaction involving two parties. In the case of an interest rate swap, one party is obliged to pay a fixed interest rate to the other party in return for a floating interest rate. In the case of a currency swap, one party is obliged to make payments in another specified currency.


Society for Worldwide Interbank Financial Telecommunication.
A non-profit electronic trade confirmation system that provides secure messaging services and interface software to financial institutions globally.


Transferring sums of money from one unitised fund to another. This is usually done on a bid-to-bid basis to avoid ‘new money‘ charges when buying units at the offer price.

Switching facility

The ability to transfer units between two funds or components of a unit trust or life policy.

Systematic risk

The systematic risk is the portion of the risk that relates to the movements in the underlying market of which this asset forms part. Systematic risk is normally measured in terms of beta. It should not be confused with systemic risk.

Systemic risk

Risk pertaining to the fundamentals of a system as a whole – eg in the case of banking, the risk of failure of the payments system or, in the case of property, a collapse of valuations owing to there being no buyers in the market. Systemic risk should not be confused with systematic risk, which relates to risks associated with individual securities rather than markets as a whole.

Tactical asset allocation

A process by which the asset allocation of a fund is changed on a short-term basis to take advantage of perceived differences in relative values of the various asset classes. A variation of asset allocation around a benchmark. See also strategic asset allocation.


The acquisition of shares by one company in another so as to gain a controlling interest.

Taper relief

Taper relief was introduced into the UK taxation regime with effect from 6 April 1998. Its purpose is similar to indexation, in that it aims to reduce the amount of Capital Gains Tax you have to pay when you sell shares, to account for the effect of inflation.

Tax exempt

Referring to income which is not liable for tax in the hands of the recipient.

Referring to a fund which does not incur tax on its income, by virtue of its beneficiaries being a specialised class of persons, eg a charitable organisation.

Tax relief

Amounts which you can deduct from your annual income to reduce the amount on which you have to pay tax. For instance, if your income before deduction of reliefs is £20,000, and you made pension contributions in the year of £1,000, you could deduct £1,000 from £20,000 to produce a total income for tax purposes of £19,000. That is because pension contributions are payments on which HM Revenue & Customs allows tax relief.

Tax year

A period of time used for tax calculations. It starts on 6 April each year and finishes on 5 April the following year.

Technical analysis

An approach to the analysis of stock and futures and their future trends which examines the technical factors of market activity, often represented by charting patterns, as contrasted with fundamental analysis. Technical analysts normally examine patterns of price change, rates of change, and changes in volume of trading and open interest, in the hope of being able to predict and profit from future trends. Some investment professionals are sceptical of the predictive ability of technical analysis, but most managers keep an eye on the charts anyway.


See Total Expense Ratio.

Term assurance

A simple life assurance policy that pays out on death of the life assured during the time period specified by the policy.

Term deposit

A deposit with a financial institution for a fixed period and a rate of interest which applies for the duration of the deposit.


A person who dies having made a will is described as ‘testate’.

Thematic manager

An investment manager who utilises macroeconomic research and expertise to develop themes to influence its asset allocation decisions. The aim of thematic managers is to identify those factors in the market which will have an influence on companies’ profitability and on the market’s perception of relative values.

Tied agent

A sales person who sells the policies of only one insurance company. Some sales people are tied to several companies – this is known as a multi-tie.

Tiger economies

A term for those Asian economies characterised by rapid growth and industrialisation since World War II. These countries include Taiwan, Singapore, South Korea and Hong Kong. See also emerging markets.


The adoption of a particular view on a sector by over-weighting a portfolio in the direction of that sector, (eg a portfolio with a high level of resource shares and low level of industrials would be described as having a resource tilt). Such a technique is commonly employed by index fund managers when clients indicate a desire for above-index returns.

Time horizon

The period of time over which an investment objective is to be realised. Time horizon is a critical factor for all investors in determining the types of investments they should make or, at least, the amount of risk they are prepared to carry. The investments made to provide for future retirement income, for instance, would almost always be different from those for short-term purposes.


The art of deciding upon the exact moment to buy or to sell.

Top down analysis

A country’s economy is considered before deciding which industry in which to invest. Economic conditions determine which industries or sectors will return well and then attractive stocks are bought within those industries.

Top slicing

A method of calculating Income Tax liability on a chargeable gain from certain packaged products.


Abbreviation for Tokyo Price Index. A Japanese share price index measuring share prices of selected large companies listed on the Tokyo Stock Exchange.

Total Expense Ratio (TER)

The Total Expense Ratio (TER) represents the true cost of running a fund. It includes the fund AMC (Annual Management Charge) as well as the depository and custodial charges, and audit, registration, and compliance fees. For direct property funds, the TER may also include the property expense ratio (PER), which captures all non-recoverable revenue costs associated with the management and operation of the property portfolio. Some fund groups show the PER included and for others it is excluded. Skandia aims to display property TERs inclusive of the PER, wherever possible.

Total return

The aggregate increase or decrease in the value of a portfolio resulting from the net appreciation (or depreciation) of the principal of the fund, plus or minus the net income (or loss) experienced by that fund during the period.

Towers Watson

Towers Watson provides global actuarial and management consulting to insurance and financial services companies. 


The Pensions Advisory Service

An independent organisation which gives free advice to members of the public who have a problem with an occupational pension scheme or a personal pension scheme. It does not give financial advice or advice on state scheme benefits.

Tracker funds

Aim to mirror or 'track' the performance of any of a number of worldwide stock market indices, such as the FTSE 100 Index. See passive management.

Tracking error

The degree of proximity with which an actual portfolio follows a representative market index. Technically the tracking error is represented by the standard deviation of the differences in return between the portfolio and the index. Tracking error measures the likelihood (based on historical data) of actual returns differing from index returns.


A person who actively buys and sells securities for his or her own account, usually with relatively short time horizons.

Transaction notes

Costs associated with managing a portfolio, notably brokerage costs and stamp duties.

Transfer payment

Payment made from a pension scheme to another pension scheme, in lieu of benefits which have accrued to the member, to enable the receiving scheme to provide alternative benefits. The amount transferred is known as the transfer value.


Negotiable debt obligations of the US government. See treasury bills, treasury bonds, treasury notes.

Treasury bills

Short term negotiable debt obligations of the US government with maturities of one year or less, issued at a discount from face value.

Treasury bonds

Long term negotiable debt obligations of the US government with maturities of 10 years or longer.

Treasury notes

Intermediate term negotiable debt obligations of the US government with maturities of 1 to 10 years.


A persistent and pervasive direction, upwards or downwards, of commodities, prices, earnings, etc over a period of time.


A legal obligation binding a person (the trustee) to deal with property over which he has control for the benefit of certain people (the beneficiaries).


An individual, group of people or independent institution responsible for the management of the trust as defined by the trust deed. The trustees have the power to veto any investment which they feel does not adhere to the trust deed.

A person or company that has legal responsibility for financial aspects (receipts, disbursements and investment) of funds; A trust company which acts in a capacity of trust as a fiduciary and to whom assets have been conveyed for the benefit of another party. The Trustee in this case oversees the behaviour of the manager in relation to the operation of a unit trust.


In relation to investment portfolios, the rate at which securities within a portfolio are exchanged for other securities of the same class; in relation to investment markets, the level of trading that occurs.

UK resident (for tax purposes)

If you are physically present in the UK for six months in a tax year then you will be resident in the UK and taxable on your income and capital gains.

If you are in the UK for less than six months you may still be taxable. If you are abroad only temporarily, or if you spend an average of three months a year in the UK for four years, you will be treated as ordinarily resident and therefore taxable.

If you regard the UK as your home you will be classed as UK domiciled. You can be a resident abroad but, if you consider the UK to be 'home' you will still be domiciled in the UK. If you die, all of your assets anywhere in the world will be chargeable to UK Inheritance Tax (IHT). If you are not domiciled in the UK, only your UK assets will be chargeable to IHT.


Referring to the structuring of a product or service where the individual components involved in the management of that product are split out with separate fees usually applying. For example, an unbundled pension arrangement might involve separation of investment management, trusteeship and insurance arrangements among different parties. (As opposed to bundled).

Under funded

Generally refers to the valuation of a final salary occupational pension fund where the actuary perceives that there are insufficient funds to support liabilities within the investment review period.

Under insured

When the maximum sum a company will pay out to cover a claim is less than the value of the loss or damage.

Underlying fund

This is the legal entity fund(s) that your investment choice is invested in.

Underlying inflation

A calculated measure that takes the headline inflation rate and excludes certain volatile items or series that are affected by factors other than general economic conditions (eg government taxes, or the effect of weather on fruit and vegetable prices). The resulting rate is based on only those items directly related to the economy.


Achievement of a lower investment return than a benchmark or other measure (eg competitor portfolios) against which that return is being compared (As opposed to outperformance).


Referring to a security or currency which trades below what is perceived to be its proper market value, taking account of statistical or fundamental research or other relevant information.


Having a lesser exposure to a particular sector in an investment portfolio, compared with a neutral or benchmark position. (As opposed to overweight).


An individual who decides whether or not to accept a risk and calculates the premium to be paid.


Review and analysis of relevant factors affecting an insurance proposal by an underwriter.

Unearned income

Income received from sources such as dividends from shares and bonds, which has not been earned by working.

Unit linked

Where the value of the saver's fund is linked to the value of the units of the trust or life company fund it is invested in.

Unit trust

An investment or company fund which pools together customers' money allowing them to increase the types of shares they can invest in, therefore reducing the risk. Many unit trusts have now become OEIC's, see Open Ended Investment Companies.

Unitised with profits

Contracts where premiums are invested in units, either in the with-profits fund or in the linked funds or a mixture of both.


When investing in a unit-linked contract, the individual's contribution is used to buy units. These units will fall or rise in line with the underlying investments.


A term sometimes used to describe the total number of operators or competitors in a particular field, or the number of available stocks from which a portfolio is selected. Investment manager performance surveys are also referred to in this way.


Referring to a company and/or shares that are not available for purchase or sale through the stockmarket.


The value or worth of a portfolio of investments or life/pension policies recorded on a statement. Not necessarily the amount available if cashed-in.

Value Added Tax

A tax on individual goods and/or services, which is added on to the retail price of those goods or services.

Value date

The official date when cash or securities are transferred.

Value investor

One who seeks to buy shares when they are under priced and to take profits when they appear over valued. The price/earnings ratio is a key valuation measure.

Value stocks

Shares in companies that are considered to be good value. Usually they are trading at a price that is low either historically or relative to its peer group.

Variable rate mortgage

A mortgage where the interest rate can move up and down. It is usually based on the Bank of England base rate.


A measure of dispersion of returns on investments based on deviations from the average or mean value.

Venture capital

Capital which is subject to more than a normal degree of risk, usually associated with a new business or venture and particularly in relation to new technology projects. Also called risk capital or development capital.


Volatility frequently refers to the Standard Deviation of the change in value of a financial instrument with a specific time horizon. It is used to quantify the risk of the instrument over that time period. Volatility is typically expressed in annualised terms, and it may either be an absolute number (£5) or a fraction of the initial value (5%).

Voting right

A right enjoyed by a shareholder to participate in the affairs of the company by voting at its annual meeting or other policy making forum. See also corporate governance, proxy.

Waiver of premium

An optional feature on some life policies where the insurance company will pay the premiums if the policyholder becomes ill.


The relative proportion of each group of securities or asset classes within a single investment portfolio. See also overweight, underweight.

Whole life policy

Life assurance that a customer pays throughout the whole of their life and that pays out whenever they die.


A legal document which lays out how the estate is to be distributed after the death of the Testator. The estate is administered by Executors on death.

With profits

A policy issued by a Life Company where premiums are paid into a with profits fund made up of shares, property, cash, fixed interest securities.

With profits bond/ policy

A single premium bond issued by a life company where a lump sum is paid into a with profits fund made up of shares, property, cash and fixed interest securities. With profits bonds use a smoothing device to protect the investor from extreme fluctuations in market conditions.

Withholding tax

The tax payable on payments such as dividends, interest and debt repayments, sent to foreign entities.

Wrap account

This is the name given to an individual’s aggregated details available to a financial adviser via the Skandia online wrap service.


A measure of the income received from an investment compared to the price paid for the investment. Normally expressed as a percentage.

Yield curve

A visual representation of the term structure of interest rates. It shows the relationship between bond yields and maturity lengths. A normal or positive yield curve signifies higher interest rates for long-term investment, while a negative or downward curve indicates higher short-term rates.

Yield to maturity

The yield provided by a bond which is held to its maturity date, taking account of both interest payments and capital gains or losses.

Zero coupon bonds

Discounted bonds which are issued with no coupon, ie there is no periodic income payment, and the yield to the bondholder is derived from the capital value of the bond at its maturity.

Zero dividend preference share

A share with a predetermined growth rate, but which does not pay dividends.

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