A

Absolute return is the amount of appreciation or depreciation an asset, such as a stock or an investment fund, achieves over a given period. This figure is expressed as a percentage.
Accrue If something is accruing, it is building up day-by-day. If an organisation owes money for goods and services but has not received a bill up to the date it prepares its accounts, it will estimate what it owes. It will then include the debt in its accounts.
Accumulation Shares/Units These are shares where the income generated is kept within the fund. These types of units/shares are better for investors seeking growth rather than income.
Active investing is where the fund manager picks investments to achieve the fund’s goals.
Advisory investment management is a service in which your investment manager follows an agreed brief, consulting you and recommending investment ideas to you. You make the final decision.
AER - Annual Equivalent Rate It is quoted by financial institutions, such as banks, to show how much the interest rate would be if the interest was worked out just once a year. It is intended to make it easier for people to judge how much interest they pay (or receive) when it is being worked out more than once a year. It is also intended to make it easier to compare different financial products.
Allocation rate When money is paid into a fund (such as a pension fund) the allocation rate is the percentage of the money left which can be invested after the charges have been taken off. For example, if the charges were 2% the allocation rate would be 98%.
AML - Anti-Money Laundering is the legal and regulatory framework designed to prevent criminals from disguising illegally obtained funds as legitimate income. Financial institutions and other regulated businesses must identify and report suspicious activity that could be linked to money laundering or other financial crimes.
Annual management charge This is a yearly charge made by the managers of unit trusts or investment trusts. It is usually a percentage of the value of the funds being managed.
Annuity An annuity is an amount paid out every year to someone. The money usually comes from an insurance policy. It can be split up into smaller amounts and paid out more frequently, such as monthly. It is usually paid for the rest of the beneficiary's life.
Asset Allocation is a way to diversify an investment portfolio. It mixes different asset classes, such as bonds and equities, and shows the types of assets the fund invests in and the proportion of the fund invested in each one.
Assets These are things which are owned such as buildings, vehicles, stock and money in the bank.
AUA - Assets Under Administration represents the total market value of financial assets for which a custodian or administrator provides safekeeping and administrative services. Unlike AUM, the administrator does not have decision-making authority over these assets. Their role focuses on record-keeping, trade settlement, tax reporting, and other back-office functions for a fee.
AUM - Assets Under Management represents the total market value of financial assets that an investment firm or individual manages on behalf of customers. This metric serves as a key indicator of a firm's size.

B

BACS payment BACS stands for Bankers Automated Clearing System which is a system for sending money electronically between banks. A BACS payment happens when money is sent electronically from one bank account to another.
Balloon payment Some loan and finance agreements have lower repayments than normal in return for a high final payment. This is called a balloon payment.
Bare trustee A bare trustee holds property ‘on trust' for another person until asked to return the property.
Basic−rate tax After the tax free personal allowance the basic rate of tax is the first tax bracket where tax is deducted from your income. As soon as your income is higher than the tax free personal allowance the basic rate of income tax is applicable to your taxable income.
Basic state pension This is the retirement pension the Government pays to people who have paid enough national insurance contributions. Some people may receive a reduced basic state pension because they have not paid enough contributions.
Bear A bear is someone who expects share prices to fall in the future and sells shares now so that they can buy them back later at a lower price.
Beneficiary This is someone who benefits from a will, a trust or a life insurance policy.
Benchmark The performance of a fund is often compared with a benchmark or a performance indicator. A benchmark can be an index, combination of indices, hypothetical fund or peer group universe.
Bid/offer spread This is the difference between the bid price and the offer price.
Bid price is the price at which a market-maker or dealer is prepared to buy securities or other assets.
Bond A bond is a written promise to repay a debt at an agreed time and to pay an agreed rate of interest on that debt.
Bonus issue If a company offers free shares to its shareholders in proportion to their existing shareholdings, it is called a bonus issue (or a scrip issue). The company accounts for it in its books by transferring the face value of the shares from the reserves to issued share capital.
Book value This is the value of a fixed asset, such as a building or machine, as recorded in an organisation's books. It is usually the amount paid for the asset less an amount for depreciation.
Bottom-up is an investment approach that looks at individual companies rather than a whole market to make an investment decision.
Bull A bull is someone who buys shares now because they expect the price to rise in the future. After the price has risen, they may sell the shares at a profit.

C

CoB - Close of Business Day or End of Business Day (EoB) is the time at which a business ceases for the general public in a day. Whilst there may be variations between institutions, COB in the UK is typically at 1700.
Coupons Bonds and gilts pay coupons which are a fixed payment that the bondholder will receive at regular intervals throughout the lifecycle of the bond.
Capital expenditure If you spend money buying or improving fixed assets, it is called capital expenditure.
Capital gain You make a capital gain if you sell or dispose of a long−term asset (such as a building) for more than it cost you.
Capital growth is the growth in the value of your capital (i.e. the amount you invest), excluding income.
Cash ISA You can invest money in a Cash ISA to earn tax−free interest.
CGT - Capital Gains Tax This is a tax charged on certain capital gains.
Compound interest is interest on the money lent, plus interest on any interest already added to the loan.
Consumer Duty is a regulatory standard that ensures financial firms to prioritise fair treatment and good outcomes for retail customers. This includes ensuring firms use clear communication and suitable products for customers.
Contract in Members of occupational pension schemes can contract in to the state earnings related pension scheme (SERPS) by paying full national insurance contributions. When they retire they will be able to draw their occupational pension as well as their state earnings related pension.
Contract out If someone contracts out of the State Earnings Related Pension Scheme (SERPS), they pay less national insurance. Instead they pay into a private pension scheme which has to meet certain conditions.
Corporation tax This is a tax companies pay on their profits.
Coupon A coupon is a dated piece of paper attached to a bond. The coupon has to be surrendered (given back) to get the interest or dividend on the bond.
Credit is:
> money received;
> income from selling goods or services; or
> an entry on the right−hand side in a double−entry bookkeeping system.
CTF - Child Trust Fund is a long-term tax-free savings account for children born between 1 September 2002 and 2 January 2011. Contributions made to a CTF typically grow tax-free until the child reaches a designated maturity age (18 years old), at which point they gain full access to the funds.
Cum−dividend If a share is sold cum−dividend, the buyer will receive the dividend declared just before they bought the share.
Current assets These are short−term assets which are constantly changing in value, such as stocks, debtors and bank balances.
Current liabilities These are short−term liabilities which are due to be paid in less than one year, such as bank overdrafts, money owed to suppliers and employees' PAYE.

D

Debenture This is a document issued by a company which acknowledges that some or all of the company's assets are security for a debt (usually to a bank). It is also a name for certain long−term loans to companies.
Debit is:
> a payment (such as out of a bank account);
> the cost of buying goods or services; or
> an entry on the left−hand side in a double−entry bookkeeping system.
Debt securities These are debts which can be bought and sold, such as debentures.
Default If someone defaults, they fail to do something which they had agreed to do.
Deferred taxation This is tax which is expected to be paid at some time in the future but is not due in the short term. Payment has usually been postponed because of tax relief.
Defensive asset allocation is a more cautious asset allocation for an investment portfolio. Compared to a standard mix, it prioritises stability over high returns. This is achieved by limiting your exposure to potentially volatile asset classes like stocks and placing a greater emphasis on safer options like bonds and cash.
Defined contribution pension scheme In this type of pension scheme the amount of the pension which will be paid out depends on how much has been invested and how well the fund has performed.
Depreciation is the drop in value of an asset due to wear and tear, age and obsolescence (going out of date) as recorded in an organisation's financial records.
Discretionary investment management is a form of investing in which a customer's buy and sell decisions are made by a portfolio manager. The term "discretionary" refers to the fact that investment decisions are made at the investment manager's discretion, in line with the customer's investment objectives and risk profile.
Discretionary trust In this type of trust the trustees can decide who will benefit from the trust and how much they will get.
Dividend If a company has profits to share out, it can pay a dividend. The shareholders get so much dividend for each share they own.

E

Emerging markets are countries whose financial markets and economies are less developed. Typically investor protections and market infrastructure are weaker than developed markets which results in more risk.
EoB - End of Business Day Same as CoB, see CoB - Close of Business Day above
Endowment policies These are a type of investment that you take out with a company. You pay in money each month for a set period of time, and this money is invested. The policy will then pay you a lump sum at the end of the term.
Enduring power of attorney If a person is capable of dealing with their own affairs at present, they can sign an enduring power of attorney. It will only come into effect when they are no longer capable of looking after their own affairs. It gives authority to the person appointed to act for the person who signed the power of attorney.
Equities (shares) A type of security that when purchased provides ownership rights to a company. When purchased you become a ‘shareholder’ of a company.
Ex−dividend If a share is sold ex−dividend the seller will receive the dividend declared just before it was sold.
Exchange control The Bank of England controls the flow of currencies in and out of the UK. It buys and sells our currency to try and keep the exchange rate with other currencies within certain limits.
Exchange rate An exchange rate is the rate at which one currency will be exchanged for another currency. It affects trade and the movement of money between countries.
Execution Only This is an account type that focuses solely on carrying out the customer’s trade orders without providing any advice to the customer.
Executor This is an individual appointed in a will to deal with the estate, according to the wishes set out in that will.
Exit charge A charge levied on the sale/redemption of certain units/shares.

F

FAMR - Financial Advice Market Review was a UK initiative launched in 2015 to assess and improve the accessibility and affordability of financial advice for all consumers. It aimed to identify and address barriers that prevented individuals from receiving proper financial guidance at various life stages.
Fiscal This word is used to describe finances controlled by the Government.
Fixed assets are assets which are intended to be used for several years. Examples are buildings, machinery and vehicles.
Fixed income refers to any type of investment under which the issuer makes payments of a fixed amount on a fixed schedule. An example would be bonds and their coupons.
Fixed interest rate This is an interest rate which does not change during the life of a loan.
Floating exchange rates These are exchange rates between currencies which are allowed to go up and down in line with supply and demand. The countries concerned do not attempt to maintain a particular exchange rate.
Foreign exchange This is the term for foreign currencies which are bought and sold. The markets for buying and selling the foreign currencies are called foreign exchange markets.
FUM - Funds Under Management represents the total market value of financial assets that an investment firm or individual manages on behalf of customers. It’s the total amount of money entrusted to them for investment purposes.
Fund management charge The managers of funds (such as investment trusts and unit trusts) make charges which are a percentage of the value of the investments they are managing.

G

GDPR - General Data Protection Regulation is a regulation in EU law on data privacy and security. Implemented in 2018, it grants individuals control over their personal data and imposes strict obligations on organisations that handle this data.
GDP - Gross Domestic Product This is the value of goods and services produced by an economy over a particular time period.
Gilts are government bonds.
Gilt−edged securities These are first−class securities such as government stocks or local authority stocks.
Gross interest This is interest which has not had any income tax taken out of it.
Gross profit is the difference between the selling price of goods and what they cost to buy.

H

Headline rate This term refers to information which is easy to publish but which may be over−simplified and, as a result, possibly inaccurate.
HNW - High Net Worth refers to individuals with a significant amount of wealth, typically measured by their net worth.

I

IFA - Independent Financial Adviser This is a qualified person or firm that can give people independent advice on life insurance and pensions and is not tied to a particular company.
IHT - Inheritance Tax This tax is charged on certain gifts, and on the value of the estate left by someone who has died.
Income and expenditure account This account records an organisation's income and spending and shows the surplus or shortfall.
Income drawdown Under this system, people with personal pensions can take money from their personal pension fund instead of using the fund to buy an annuity.
Income tax You pay this tax according to how much income you have under various categories.
Income unit This is a unit trust which pays out the income it earns to the investors, instead of reinvesting it.
Indexation This means making adjustments to allow for the effects of inflation.
Inflation This is the name for general price increases.
Insolvent If debts cannot be paid when they are due for payment, the person or organisation owing the money is insolvent.
Intangible assets cannot be touched. Examples are goodwill and patent rights.
Interim dividend The directors of a company can review the company's performance part way through the financial year and declare a dividend. This is called an interim dividend.
Intestacy This happens when someone dies without leaving a will. Their estate is divided up between their relatives following the rules set by law.
Investment grade issuers These are soundly based companies of the highest quality.
Investment manager is the person who manages your investment portfolio if you use a discretionary or advisory investment management service.
Investment trust This is a company which is quoted on the stock exchange and which invests in other companies.
ISA - Individual Savings Account This is a savings account which was introduced 6 April 1999. The income earned by the money invested will be free of tax.
Issued share capital This is share capital which has been allocated to shareholders who have subscribed for (asked for) shares.

J

JISA - Junior Investment Savings Account a tax-free savings account set up by a parent or guardian for a child below 18 years of age.
Joint Account An account with two or more individuals acting as co-owners.
Junk bond Bonds rated with the lowest credit rating, usually issued by companies in financial turmoil. Since they are riskier, they offer a much higher yield.

K

KID - Key Information Documents A KID is similar to a KIID ( see below), the only difference being a KID includes forward-looking performance scenarios.
KIID - Key Investor Information Document This is a standardised, two-page document required for certain investment funds. It provides a concise overview of the fund's key features in an easy-to-understand format, helping investors compare different options.
KRI - Key Risk Indicator is a quantifiable metric used to monitor and identify potential threats to a business. By tracking KRIs, it is possible to mitigate risks.
KYC - Know Your Client regulations require businesses to verify customer identities and assess potential risks. This helps prevent money laundering, terrorist financing, and fraud and helps the customer achieve their financial goals.

L

Leverage is the term used when a fund borrows money longer term to invest it in assets and earn a profit.
Liabilities These are debts that a person or an organisation owes.
Life assurance (or insurance) policy This type of policy is a contract between the policyholder and the insurance company. The insurance company will normally pay out if the policyholder dies.
Liquidation This is the process of winding up a company by paying its creditors and distributing any money left among the members.
Liquidity If an investment is ‘liquid’ it can be bought or sold easily and quickly.
LOI - Letter Of Indemnity This is a legal document where one party (the indemnitor) agrees to financially compensate another party (the indemnitee) for specific losses or liabilities incurred due to a particular action or situation.

M

Market capitalisation If you multiply the number of ordinary shares a company has issued by their market price, you get the market capitalisation value of the company.
Market share is the portion of a market controlled by a company or product.
Mature/maturity If an investment policy comes to the end of its life, it has reached maturity.
Member The shareholders of a company are its members.
MiFID/MiFID2 - Markets in Financial Instruments Directive are European regulations that aim to protect investors by ensuring investment firms act fairly and transparently. Meaning information is clear and suitable for a customer’s goals.
MIFIDPRU - Prudential sourcebook for MiFID Investment Firms module of the FCA Handbook MiFIDPRU builds on MiFID2 for investment firms. It sets stricter capital requirements, ensuring firms have enough resources to manage your investments responsibly. In short, it provides an extra layer of protection for your money.
Minor Someone who has not yet reached the age when they get full legal rights and responsibilities. In the UK this is a person under 18 years of age.
MLRO - Money Laundering Reporting Officer is the designated person within a company who watches for suspicious financial activity or who people who suspect suspicious activity report to. They ensure the firm complies with anti-money laundering rules, helping to keep your finances safe from criminal activity.
MOA - Memorandum of Advice is a formal document outlining professional guidance on a specific matter. You'll often find MoAs in legal or financial contexts, where professionals provide tailored advice to their customers.
Mortgage A mortgage is using a property as security for a debt.
MPS - Model Portfolio Service offers pre-built investment portfolios (known as model portfolios) tailored to different risk tolerances.

N

Net book value This is what an asset cost, as recorded in the books of account, less all the depreciation taken off the asset for age and wear.
Net interest This is interest which has had income tax taken off it.
Net profit This is the profit left after all overheads have been taken off.
Non−profit organisation One which is not intended to make a profit, such as a credit union.

O

Occupational pension schemes These are schemes set up by employers to provide pensions for their employees.
OEICs - Open Ended Investment Companies An OEIC is a type of unit trust but there is no difference between the bid price and the offer price. In other words the buying price and the selling price is always the same.
Offer price is the price at which a market-maker or institution is prepared to sell securities or other assets.
Ongoing charge is the charge levied by the fund management company to cover the costs and expenses of managing funds. The ongoing charge excludes any performance fees or portfolio transaction costs.
Operating profit (or loss) The profit (or loss) from a company's principal (main) trading activity.
Option Under this sort of contract, paying an amount of money gives a right to buy or sell goods at a fixed price by a particular future date.

P

Passive management Unlike active management, the fund manager aims to track the performance of a stock exchange index or another investment and doesn’t pick the companies held.
PAYE - Pay As You Earn is a tax collection system. It ensures that the Government collects tax revenue due from employed workers at the point they are paid by their employer.
Payee This is the person money is being paid to.
Personal allowance People do not have to pay income tax on all their income. Everyone gets a tax allowance which allows them to have some income they do not have to pay tax on. However, the amount varies depending on personal circumstances.
Personal pension A personal pension is any pension scheme you can join yourself that is not an occupational pension (nor the basic state pension).
POA - Power of Attorney is a document which gives power to the person appointed by it to act for the person who signed the document.
Premium This is the money the policyholder pays to the insurance company in return for the cover set out in the insurance policy.
Private limited company A private limited company cannot sell its shares to the public and is not listed on the stock exchange.
Pro rata This means in proportion to. For example, if ten items cost £100, you would expect three items to cost £30, if they were pro rata.
Probate When someone dies, the executors of the dead person's estate apply to the court for authority to deal with the estate. This authority is called probate.
Profit and loss account A profit and loss account shows the money a business has earned from selling goods and services, less the money spent on goods, services and overheads.
Public limited company A public limited company is a business that is managed by directors and owned by shareholders. A public limited company can offer shares to the public.
Purchased life annuity A person can buy this type of annuity from an insurance company by paying a lump sum.

Q

Quartile In statistics the quartile point is the spot where one quarter of the items in a series is on one side and three quarters are on the other side.
Quote The highest bid and lowest asking price for a security at a particular time.

R

Rate of risk If an investment carries more risk it is expected to deliver better returns than a lower−risk investment.
Redemption means paying off all the money borrowed under an agreement.
Retained profits (or losses) profits earned by a business which have not yet been spent.
Rights issue This is an issue of extra shares by a company. Existing shareholders can buy extra new shares in proportion to the shares they already hold. The shares are usually on sale at a price lower than the stock−market price to encourage shareholders to buy. The shareholders can sell the rights if they do not wish to use them.
Risk profile is a term used to describe the ability or willingness of an investor to accept the risk of loss of capital or the failure to meet certain financial objectives.
Risk summary is a summary of key risks that apply when investing in the fund.

S

SDRT - Stamp duty Reserve Tax is a tax on the transfer documents for certain types of transaction. Examples are the buying of shares, patent rights and properties.
Securities This term is used for stocks, shares, debentures and so on where there is a right to receive interest or dividends from the investment.
Self−assessment This is a system for taxpayers to work out the tax they have to pay. However, if they send their tax returns to the Inland Revenue in good time, the Inland Revenue will do the calculations.
SERPS - State Earnings Related Pension Scheme This government scheme allowed people to increase their basic state pension income. They could achieve this by building up ‘additional state pension’, based on their level of earnings over their working life. However, it was possible to opt out of SERPS (known as contracting out) in order to enhance your occupational or private pension instead. This means that if you were working between 1978 and 2016, you may have opted to contract out for some of this time, if any of your occupational pensions offered this option.
Share capital is the money invested directly in a company by its members (shareholders).
Share certificate This document certifies who owns shares in a company. It gives the type and number of shares owned by the shareholder and lists the serial numbers of the shares.
SIPP - Self Invested Personal Pension grants you more control over your retirement savings. You choose the investments, from stocks to bonds (with limitations) for potentially higher returns, but you are also responsible for the investment risks and management.
SSAS - Small Self Administered Scheme is a private pension for a small business's directors or staff. It lets you pick investments for your retirement pot, but you're also responsible for the choices and any risks involved.
Stock exchange A stock exchange is a market for stocks and shares. Organisations can raise capital by selling securities through a stock exchange.
Subsidiary A subsidiary is a company controlled by another company. The control is normally a result of having more than 50% of the voting rights.

T

Tangible assets If an asset can be physically touched, it is a tangible asset.
Tax allowance Taxpayers are given tax allowances to reduce the amount of tax they have to pay. The allowances are taken off their income before the tax is worked out.
Tax avoidance Reducing tax bills by using legal means is called tax avoidance.
Tax credit When companies pay dividends they send each shareholder a dividend warrant. The warrant shows the amount of the dividend and also a figure for a tax credit. For basic−rate taxpayers the tax credit covers the income tax due on the dividend.
Tax point The tax point is the date when value added tax arises on goods or services supplied (or made available) to a customer. The tax point should be displayed on invoices.
Tax year The UK tax year starts on 6 April and finishes on 5 April in the following year.
Top-down is an investment approach that looks at the overall economy or industry to inform investment decisions.
Tracker funds invest in the same shares and in the same proportions as those reflected in the financial index they are tracking (such as the FTSE 100 index).
Trading account A trading account is the part of a profit and loss account which records money due from selling goods, less what those goods cost. This gives the gross profit on those goods.
Treasury bill This is an unconditional written promise by the Treasury to repay money it has borrowed for the short term, to pay for the Government's spending.
Trust A trust is a financial arrangement under which property is held by named people for someone else.
Trust deed This is a legal document which is used to:
> Create a trust; or
> Control a trust; or
> Change a trust
Trustee A trustee is a person or firm that holds and administers property of assets on behalf of a beneficiary. A trustee may be appointed for various purposes, such as in the case of bankruptcy, certain types of retirement plans or pensions, or to manage the assets for someone like a minor.
Turnover A business's turnover is the total value of its sales over a particular period.

U

Unit−linked Some investment policies, such as endowment policies, are used to invest in unit trusts. These are called unit−linked life assurance policies.
Unit trust People can invest in unit trusts by buying units. The managers of the trust use the money people invest to buy investments. The fund manager values the fund's assets from time to time and puts a new price on the fund's units.

V

Valuation point This is the date and time when the fund manager revalues the investments in a fund, such as a unit trust.
VAT - Value Added Tax Most traders in the UK are registered for VAT. This means that registered traders have to charge their customers value added tax on any goods and services they supply which are not exempt. The VAT collected (less VAT they have been charged) is later paid to HM Customs and Excise.
Volatility is a measure of how much the value of an asset moves up and down.

W

Warrant A warrant is a certificate which gives the person holding it the right to buy shares at a given price.
Whole−life assurance This is life assurance cover which lasts the lifetime of the person whose life is assured.
Will A will is a legal document which people use to bequeath (leave as a gift) money and property when they die.
Winding up This refers to closing the operations of a business, selling off assets, paying off creditors and distributing any remaining assets to the owners.

X

Y

Yield A yield is an investment's annual payment. It's the income you receive from an investment, typically expressed as a percentage.

Z

Zero-Coupon Bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount the investor will receive when the bond "matures" or becomes due for repayment.

Investment glossary

Investment glossary

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