Glossary - C | Skandia UK

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.

Cap

A ceiling or maximum rate of interest under a loan.

Capital

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.

Capitalisation

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.

CAPM

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.

Cash

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.

Certificates

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

Chartist

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).

Churning

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.

Collar

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.

Commission

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

Commodity

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

Compliance

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.

Contract

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.

Contribution

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.

Correction

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.

Coupon

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.

Currency

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.

Custodian

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

Custody

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.