Glossary Investment terms The following are explanations of some of the terms you would have come across in this guide. Asset Default Maturity Anything having commercial or exchange value that When a borrower does not maintain interest The length of time until the initial investment Ais owned by a business, institution or individual. payments or repay the amount borrowed when due. amount of a fixed income security is due to be repaid to the holder of the security. Asset class Diversified/Diversification Category of assets, such as cash, equities (or The practice of investing in a variety of assets. This Open-Ended Investment Company (OEIC) company shares), fixed income securities and their is a risk management technique where, in a well- A type of managed fund, whose value is directly sub-categories, as well as tangible assets such as diversified portfolio, any loss from an individual linked to the value of the fund’s underlying real estate. holding should be offset by gains in other holdings, investments. thereby lessening the impact on the overall portfolio. Bond Par value A loan in the form of a security, usually issued by Dividend The initial price of a bond, also known as face value. a government or company, which normally pays a Dividends represent a share in the profits of fixed rate of interest over a given time period, at the a company and are paid out to a company’s Portfolio end of which the initial amount borrowed is repaid. shareholders at set times of the year. A combination of investments held by an investor. Capital growth Equities Risk Occurs when the current value of an investment is Shares of ownership in a company. The chance that an investment’s return will be greater than the initial amount invested. different to what is expected. Risk includes the Face value possibility of losing some or all of the original Coupon The initial price of a bond, also known as par value. investment. The interest paid by the government or company that has raised a loan by selling bonds. Inflation Unit trust The rate of increase in the cost of living. Inflation is A type of managed fund, whose value is directly Credit rating usually quoted as an annual percentage, comparing linked to the value of the fund’s underlying An independent assessment of a borrower’s ability the average price this month with the same month investments. to repay its debts. A high rating indicates that the a year earlier. credit rating agency considers the issuer to be at low risk of default; likewise, a low rating indicates high Issuer risk of default. Standard & Poor’s, Fitch and Moody’s An entity that sells securities, such as fixed income Z are the three most prominent credit rating agencies. securities and company shares. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security’s life. 11