| Abuse |
Incorrect or illegal use |
| Accrued Income |
The income of a CIF which is held pending distribution and included in the net asset value |
| Accumulation |
Adding income to capital, instead of distributing it as dividends, thus increasing the CIF share or unit price. See ‘reinvestment’ for alternative method |
| Active management |
The management of a portfolio through analysis of fundamental economic and corporate trends (versus ‘passive management’, see later) |
| Administration (Fund administration, fund administrator) |
The department or outside organisation which provides administrative services to a fund or fund manager |
| Ad-valorem |
A tax, charge or fee based on market value |
| Advisor (Investment or Financial) |
The individual or organisation which provides investment management services to a fund; or an individual or organisation which provides personal financial advisory services to individuals |
| Affiliation |
A link between entities or individuals which enables influence or control to be exerted over their activities, usually specifically defined in securities law in order to deal with conflicts of interest |
| Aggregation clause |
Where limits on investment are applied by aggregating all the holdings of a particular investment across the whole range of funds managed by a single management company |
| Alternative investment |
Any investment which is not a mainstream marketable security |
| Annual fee |
Recurring fee paid annually for the management of a fund |
| Annual remuneration |
Total annual payment to a fund management company or service provider for their services to a fund |
| Annual report |
Audited annual report required to be sent to all investors in a fund; semi annual unaudited report in same format also required to be issued |
| Annualised return |
The average annual percentage growth calculated from the total return over periods of more than one year |
| Appeal |
An application for a regulatory or Court decision to be changed |
| Ask price |
See ‘offer price’ |
| Asset allocation |
The process of diversifying a fund portfolio between asset classes - typically cash, bonds or equities |
| Asset value |
The value of assets which comprise the portfolio of the fund, valued at market prices or by an appraiser if illiquid |
| Auditor |
Organisation required to undertaken an annual independent audit (and sometimes a check on valuation and pricing) |
| Authorised Corporate Director ("ACD") |
An arrangement whereby the directors of an authorised UK open ended investment company may be substituted by the authorised management company as ACD |
| Authorisation |
Granting of regulatory permission for a CIF to be publicly offered; may also be termed registration. Also used to refer to issue of licence to a regulated entity |
| Back end load |
Exit fee levied by a CIF on redemption: see ‘charges’ |
| Balanced funds |
Funds whose investments are a mix of different types of asset (typically bonds, cash and shares) |
| Bearer security |
A security, for which the only evidence of ownership is possession |
| Benchmark |
An objective indicator against with which investment performance can be compared and measured (an index, a rate of interest or the rate of inflation for example) |
| Beta |
A coefficient which measures a security's relative volatility |
| Bid price |
Price at which a fund unit or share is able to be sold back to the fund Management company (also ‘repurchase’ or ‘redemption’ price): see also ‘offer price’ and ‘spread’ |
| Blue chip |
A high quality investment. Term usually applied to equities |
| Bond |
Any interest bearing or discounted multilateral, government, municipal or corporate security that obliges the issuer to pay the bondholder a specified sum of money, usually at specific intervals and/or to repay the principal amount of the loan on maturity. A secured bond is backed by collateral; an unsecured bond (or debenture) is backed by the credit of the issuer but not collateral |
| Book value |
For funds, the original cost of the asset, modified by subsequent transactions |
| ‘Bottom up’ |
Type of investment analysis that emphasises fundamental data on companies rather than macroeconomic or market data. See ‘top down’ |
| Boutique (Investment boutique) |
Small specialised investment management business |
| ‘The box’ |
Units or shares in funds under its management purchased and held by a management company on its own account which may be subsequently sold to investors or redeemed either at a profit or at a loss |
| Breach |
Breaking of a rule; failure to meet an obligation under a contract |
| Broker |
Individual or institution, which introduces the two parties to a transaction to each other. Brokers do not take positions in securities for themselves (see dealer) |
| Cancellation |
See ‘liquidation’ |
| Cancellation price |
The lowest possible valuation of shares or units in a fund, under Financial Services Authority regulation, on any one day |
| Capital |
For CIFs, this term is used to signify the cost or market value of CIF assets as opposed to the income (dividends, interest, rental) generated by them |
| Capital |
For regulated entities, the amount of money that they must have in order to receive and retain an authorisation or licence: may have different requirements for paid up capital and liquid capital |
| Capital Asset Pricing Model (CAPM) |
A sophisticated model of the relationship between expected return and expected risk |
| Capital gain (loss) |
The profit (or loss) made on the sale of a capital asset |
| Capital protected funds |
In principle these funds seek to protect the capital invested but do not make an absolute guarantee to repay it (refer guaranteed funds).Some funds ‘lock in’ returns, so that, during a fund’s lifetime, if the fund price achieves a certain level, the aim is that it will not subsequently fall below this level |
| Capital reserves |
The reserves created on the passive side of the balance sheet to reflect changes in the value of closed ended fund assets. They may take the form either of realised or unrealised reserves |
| CAT standard |
Voluntary standards introduced by the UK government that can be applied to Individual Savings Accounts (see below) or stakeholder pensions, referring to Charges, Access and Terms |
| Central Depositary |
A term used variably to describe an entity which may simply be the central registrar for all listed or quoted securities; or for an organisation which may also undertake clearing and settlement functions for such securities |
| Certificated share or unit |
A share or unit for which an ownership certificate is issued. Certification may or may not be a legal requirement |
| Charges |
Entry fee (‘initial charge’ or ‘front end load’) levied upon purchase of units or shares in a fund; annual fee (see ‘annual fee’ above) or exit fee (‘redemption charge’ or ‘back end load’) levied upon sale of units or shares in a fund. Entry or exit fees may be added to, or deducted from, the NAV of the unit or share. Also see ‘no load’ |
| CIF |
Collective Investment Fund |
| CIF operator |
Company or organisation responsible for the management and administration of one or more CIFs; also referred to as fund management companies |
| Clearing |
The process of matching trades for clearance and settlement |
| Class action |
A legal complaint filed by a group of investors all of whom have the same grievance |
| Closed End(ed) Fund |
A fund which has a fixed number of shares or units in issue |
| Collective investment scheme |
Generic name for investment funds; often only covers open ended funds |
| Commission |
Fee payable to agents or salespeople who sell fund shares or units to clients: normally a percentage of the amount invested in the CIF by their customers. May also refer to commission paid to a broker for making securities transactions for the fund’s portfolio |
| Compensation |
Payment to compensate for loss (see below) suffered by investors |
| Compensation fund or scheme |
A fund designed to compensate investors for losses incurred through fraud or malpractice by licensed entities |
| Compliance |
The conduct of business in accordance with law and regulation |
| Compliance officer |
Individual responsible for ensuring that a regulated entity conducts its business in accordance with law and regulation |
| Conflict of interest |
The term used to describe the situation where an individual or company may have a commercial or financial involvement in a transaction, but a legal or fiduciary duty to act in a way which would be prejudicial to their own commercial advantage |
| Contractual fund |
A fund formed under the law of contract or Civil Code (eg German Investmentfonds). May be open ended, interval or closed ended |
| Convertible |
Fixed interest security that can be converted into equities at some future date |
| Corporate fund |
A fund formed under joint stock company law (eg American mutual funds). May be open ended, interval or closed ended |
| Pound (currency unit) Cost Averaging |
A way of buying shares or units by investing a constant sum at regular intervals; the investor thus acquires more shares or units when prices are low and fewer when they are high |
| Corporate governance |
The system by which companies or funds are directed or controlled |
| Coupon |
Interest rate on a debt security (bond) which the issuer promises to pay to the holder until maturity, expressed as an annual percentage of face value |
| Creation |
In fund terms, the act of creating additional shares or units in an open ended or interval fund. Achieved by depositing with the fund the value of the shares or units to be created and increasing the number of shares or units in the fund in proportion to the value deposited |
| Creation price |
The highest possible price which can be paid for units or shares in a fund on any one day, under Financial Services Authority regulations, before the initial charge |
| Cross border marketing |
Selling the shares or units of a fund that is domiciled in one country into other countries |
| Cross holding |
Where companies or funds hold shares in each other reciprocally |
| Cum dividend |
Meaning ‘with dividend’ – said of a share or unit whose buyer is eligible to receive the dividend |
| Custodian |
Licensed entity responsible for safekeeping of CIF assets; known as depositary for an OEIC |
| Customer database |
Record (list) of customers which enables all transactions and holdings of a management company’s CIFs by one individual to be identified; often contains other marketing data |
