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Investments jargon buster



Actively Managed Funds
Actively managed funds mean that the fund manager buys and sells holdings as required to maximise gains and minimise losses. This allows the manager to adapt to changing market conditions.

Annual Pension Allowance
For pensions, the annual allowance is the maximum amount that can be paid into all your registered pension schemes before tax charges arise. If the amount paid is more than the annual allowance, you’ll be taxed on any excess. For the 2018/19 tax year, the annual allowance is £40,000.

Annual ISA Allowance
HM Treasury set an annual allowance for contributions to cash ISAs, stocks and shares ISAs and innovative finance ISAs each tax year (tax years run from 6 April one year to 5 April the following year). In the 2017/18 tax year, you can save or invest up to £20,000 which can be put into a cash ISA, a stocks and shares ISA, an innovative finance ISA or a Lifetime ISA. You can invest up to £4,000 in a Lifetime ISA and the remaining allowance between any combination of the other three types of ISA, as long as you don’t exceed £20,000 in total across your ISAs.

Annual Management Charge (AMC)
This is a charge made by fund managers to cover the costs of running them, and usually forms part of the fund’s total Ongoing Charge. Details of each fund’s charges can be found in its Key Investor Information Document (KIID).

A pension annuity is an income for life purchased from an annuity provider with the proceeds of a pension fund. This is normally after the payment of any tax-free cash.

Asset Allocation
A fund manager’s decision on what assets and what proportion of each will be held in a fund.

Your money, and anything else you own which is worth money, such as property or shares.

Additional Voluntary Contributions made by you into your occupational pension scheme to increase the value of the benefits you’ll receive.


Base rate
The interest rate set by the Bank of England. Loan and mortgage rates may be linked to this rate.

Bid price
The price at which you sell shares.

A bond is a loan that you make to a company or the government for a fixed period, during which they pay you a fixed rate of interest. At the end of the period, you get your original investment back. During that period, bonds can be bought and sold on the market. Their price changes according to how attractive their interest rate is compared to other available rates.


Capital Gains
An increase in the value of your capital such as the value of your investments.

Capital Gains Tax
A tax paid on any profit you make by cashing in some types of investments. There is an annual threshold for capital gains (£12,000 this tax year); if your profits exceed this you’ll pay 18% or 28% Capital Gains Tax. Sometimes CGT will be paid if you gift an investment to someone who is not your spouse or civil partner.

Child Trust Fund
These were savings and investment schemes for children born on or after 1st September 2002 and before 1st January 2011 and have now been replaced by Junior ISAs. Contributions can be made to existing Child Trust Funds of up to £4,368 this tax year, and money will be available to the child when they reach 18.

Collective Investments
Collective investments are schemes such as unit trusts, investment trusts and OEICs, where investors’ money is pooled. The main advantage of such schemes is to give investors access to a wider range of investments than they would have as individuals.

The amount you are paying in to a plan.

Crystallisation is when you start to draw your pension. This could be when you draw all or part of your pension arrangements, or if you die before pension benefits have been taken.



Diversification means spreading your investments across a range of asset types to minimise exposure to risk.

The distribution of part of a company’s profit earnings to its shareholders. Dividends are usually paid twice a year in the form of a final dividend and an interim dividend, although some companies pay dividends quarterly.


A stake or share in a company listed on a stock exchange, entitling you to a proportion of any profits made by the company.


Final Salary Scheme
This is a type of occupational scheme, also known as ‘defined benefit’, where the employer makes a promise to pay a scheme member a pension, which will be determined by their final salary, years of service, and a rate of accrual (or build up). The accrual rate is normally expressed as a fraction e.g. 1/60th for each year of service.

Financial Conduct Authority (FCA)
An independent body set up by the government to regulate investment business, deposit taking and insurance.

Fixed interest security
Another name for a bond.

FTSE All-Share Index
The Financial Times Stock Exchange’s measure of the performance (or ‘index’) of more than 800 companies listed on the London Stock Exchange. FTSE is pronounced ‘footsy’.

FTSE 100 Index
The index of the top 100 companies listed on the London Stock Exchange.

FTSE 250 Index
The index of the top 250 companies listed on the London Stock Exchange.


Please see ‘Government bonds’ below.

Government Bonds
These are also known as ‘gilts’ when they are issued by the UK government. When you, or a fund manager, invest in a gilt, this is effectively a loan to the government. In return, the government pays a fixed rate of interest based on the ‘nominal value’ of the gilt. For example, if an investor holds a gilt with a nominal value of £100 and a fixed interest rate of 5%, the government pays the investor £5 a year in interest. This is normally until a specified date in the future (the maturity date), when the government repays the nominal value of the investment. Gilts are normally regarded as relatively low-risk investments because there is almost no risk of the UK government being unable to repay its debts.

Group Money Purchase Scheme
This is a type of occupational pension scheme where the employer and usually the employee make contributions into the pension arrangement. The amount to be contributed is normally defined in the contract of employment, which is why they’re also classified as ‘defined contributions’.



Income yield
The amount of income generated by an investment in relation to the price at which they were bought.

An index is a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market. Indices can be grouped by market cap, business type, sector or other characteristics.

Index-linked annuity
An annuity which increases over time. It could be linked to the Retail Prices Index or a chosen annual percentage.

Index-linked Tracker Fund
Index-linked tracker funds aim to track the performance of a particular index. The fund may invest in all the individual stocks within a fund, or aim to mimic its performance by choosing a representative range of investments.

Inflation is the increase in prices over time and the corresponding fall in buying power.

Investment trusts
A type of collective investment scheme. An investor buys shares directly in the investment trust and the trust managers invest this money in various other company shares according to the investor's fund choice. Investment trusts differ from unit trusts in that they can take on debt in order to buy more assets to try to exploit upward movements in the market. Of course, this can work the other way if the market goes down. They also deal in shares rather than units and are a public limited company, not a trust.


ISA is short for Individual Savings Account and can provide holders with tax benefits. UK residents can have a cash ISA, a stocks and shares ISA, a Lifetime ISA, an innovative finance ISA or a combination of the four. The annual allowance for ISAs this tax year is £20,000 which can be invested in a stocks and shares ISA, a cash ISA, an innovative finance ISA or a combination of the three.

Alternatively you can split your allowance by investing up to £4,000 in a Lifetime ISA and the remaining allowance between any combination of the other three types of ISA, as long as you don’t exceed £20,000 in total across your ISAs.

ISA manager
The official term for the company or entity responsible for running ISA products.


This is short for International Securities Identification Number. This is a 12 digit unique code which is used internationally to identify a security.


Key Investor Information Document (KIID)
A document which gives a detailed explanation of how a fund  works, including any charges you may incur. Before you choose to invest in a fund, you should always carefully read the Key Investor Information Document.


Lifetime Allowance
The Lifetime Allowance is the maximum amount of pension saving you can build up over your life that benefits from tax relief. If you build up pension savings worth more than the Lifetime Allowance you'll pay a tax charge on the excess. The Lifetime Allowance stands at £1,055,000 and the current rate of tax payable on crystallisation of benefits is 55% for lump sums or 25% if to be taken as income.



When an investment plan reaches the end of its fixed term.

The mid-price, or mid-market price, is halfway between the bid (selling) price and the offer (buying) price for securities, and is usually the price quoted as the value of the security.

Multi-asset funds

Multi asset funds invest in a range of assets, which can minimise risk for investors. This is also known as diversification. The type and proportion of assets held in a multi-asset fund varies.


National Average Earnings
This Index shows the growth in national average earnings across all sectors of the UK economy. 


An Open-Ended Investment Company (OEIC) is a type of collective investment scheme, similar to a unit trust except that an OEIC is incorporated as a separate legal entity and issues shares rather than units.

Occupational Pension
This is the term given to certain types of pension schemes set up by employers on behalf of their employees and would include all final salary schemes and many money purchase schemes.

Offer price
The price at which a share is bought.

On deposit
A sum of money you put into a bank, a building society, or National Savings is said to be ’on deposit’.

Ongoing charges
Ongoing charges are all the charges associated with the management of the fund. You can find details of a fund’s ongoing charges in its Key Investor Information Document (KIID).

Managed funds have target allocations for particular sectors or asset types, such as 50% equities. If the fund held 52% in equities it would be described as overweight in equities.


Passively managed funds

Passively managed funds are usually funds that track an index and do not have a fund manager monitoring performance. See Index-linked Tracker Fund for more information.

Pay As You Earn is the system whereby Income Tax and National Insurance contributions are deducted from your salary before you receive it.

A tax-efficient savings plan whereby you save money to provide benefits which can not be touched until you reach minimum pension age (50+ until April 2010, 55+ after April 2010 and 57 from 2028 ).

Phased Retirement
A personal pension fund is set up as a number of segments, generally speaking a thousand, allowing you to take benefits from segments in stages over a number of years. This is done by either buying an annuity with a segment (or segments) or taking advantage of an unsecured pension from a segment (or segments).  The benefit of phased retirement is that you do not have to take your entire pension in one go and the remaining segments stay invested with the potential to grow or drop in value. This is also sometimes referred to as staggered vesting.

Pooled investments
Pooled investments are collective investment schemes, which combine the capital of a large number of investors, allowing investors access to a far wider range of assets than they would be able to reach individually. This can help to spread risk and reduce costs. Examples include OEICs and Unit Trusts.

The spread of investments held by an individual or a fund.

Pound cost averaging
Pound cost averaging is a way of smoothing returns on your investment over time without having to predict when markets will rise or fall. You make regular fixed contributions to an investment, such as a unit trust or OEIC. When prices are low your money buys more shares or units, and when prices are higher it buys fewer. The effect of this is that you pay the average share or unit price over time.

Protected Rights Funds
Pension funds which have been built up from National Insurance rebates as a result of contracting out of the State Second Pension - formerly known as SERPS.


Rebalancing is the process carried out by fund managers to make sure the fund doesn’t stray far from its target asset allocation. This could involve selling over-weighted securities, buying under-weighted securities, or a combination of the two. Rebalancing is used in actively managed funds to maintain the level of risk expected by investors in the fund.

Recovery Charge
This is the term given to the tax payable on any amount over the Lifetime Allowance when retirement benefits are crystallised. The scale of this charge (25% if the excess is used to provide taxable income and 55% if taken as cash) is designed to take back the benefits of tax relief and growth on the part of the fund in ’excess’.

Redemption yield
This is the return on a bond at its maturity date in relation to the price at which it was purchased and the interest payments received by the bondholder.

Regular Investments

Regular investments involve investing smaller amounts on a regular basis rather than investing a single lump sum. This can help to smooth the ups and downs of the stock market due to pound cost averaging.

Retail Prices Index
Also known as RPI. A measure of inflation based on how the prices of a wide range of goods, including housing costs, have changed over the previous financial year. The RPI is the most widely known measure of inflation in the UK. Tax allowances, benefits and pensions are often increased line with RPI.

This refers to the gain or profit on an investment, and does not include the original capital invested.



The generic term for shares and bonds.

A stake in a company listed on a stock exchange entitling you to a proportion of any profits made by the company.

Single asset funds

Single asset funds invest in one asset only, which can make them riskier than multi-asset funds as no one asset consistently outperforms all others on a regular basis.

Staggered vesting
A personal pension fund is set up in a number of segments, generally a thousand, allowing you to take benefits from segments in stages over a number of years. This is done by either buying an annuity with a segment (or segments) or taking advantages of an unsecured pension from a segment (or segments). The benefit of phased staggered vesting is that you do not have to take your entire pension in one go and the remaining segments stay invested. This is also sometimes referred to as phased retirement.

Stakeholder Pension
A type of pension introduced by the Government in 2001 in order to make it easier for people to save for their retirement. Stakeholder pensions are designed to be straightforward, flexible, and inexpensive.

State Pension Credit
The State Pension Credit was introduced on October 6 2003 to replace the Minimum Income Guarantee. It is a means tested benefit available to people over State Pension Age and the amount depends on age, income and savings. The stated intention is to reward savers rather than penalising them as tended to happen before.

State Second Pension (S2P)
If you qualify for the State Second Pension (S2P), you are entitled to a supplementary pension from the state when you reach the state retirement age. This replaces SERPS.

A general term that can cover gilts and corporate bonds, essentially meaning fixed term, fixed interest loans to the government (gilts) or companies (bonds).

Stock exchange
A stock exchange is where stocks and shares are bought and sold.

Stocks and Shares ISA
Stocks and Shares ISAs (Individual Savings Accounts) are a simple, flexible and tax-efficient way of investing in the stock market through portfolios or funds.

Synthetic performance
Synthetic performance is used when a new fund is created. As it has no previous data, the underlying assets are used to reproduce the artificial performance.


A term used to describe investments which offer tax benefits or tax relief. The Government will normally give you tax relief that helps increase the value of your plan. If the basic rate of tax is 20%*, for every £80 you pay into your plan each month, the Government will automatically top up your pension with an additional £20. If you are a higher or additional rate taxpayer, you may be able to claim additional tax relief via your annual tax return.

* If you are resident in Scotland for tax purposes the tax relief you will be entitled to will be at the Scottish Rate of income tax, which may differ from the rest of the UK.

Tax relief

This is the mechanism by which successive Governments have encouraged individuals and corporations to make private provision for retirement. For example, for individuals, it means that tax can be reclaimed on pension contributions at the highest rate(s) at which it is paid.

Tax Year
A tax year runs from 6 April one year to 5 April the following year.

Term assurance
A low-cost form of life insurance. If you die within a given period (the ’term’), it will pay out, however, if you survive the term nothing will be paid out.

Tracker funds
Also known as 'index funds', tracker funds are designed to track (as closely as possible) the performance of a Stock Exchange index such as the FTSE All-Share Index. Tracker funds are passively managed, which means there is no manager making investment decisions and will usually have lower charges than actively managed funds.

An arrangement whereby control over an asset is transferred to a person or organisation (known as the ’trustee’) for the benefit of someone else (known as ’the beneficiary’).


Managed funds have target allocations for particular sectors or asset types, such as 50% equities. If the fund held 48% in equities it would described as underweight in equities.

A share in a unit trust.

The generic term for policies whose value is determined by the performance of a portfolio of stocks and shares.  A unit linked investment can therefore go up and down in value.

Unit trust
A type of collective investment, where investors pool their money to buy units in a choice of fund.


The amount of income generated by an investment, expressed as a percentage of the value of the investment.