Glossary Investment terms The following are explanations of some of the terms you would have come across in this guide. Bond Credit rating Fixed income security A loan in the form of a security, usually issued by An independent assessment of a borrower’s ability A loan in the form of a security, usually issued by Aa government or company, which normally pays a to repay its debts. A high rating indicates that the a government or company, which normally pays a fixed rate of interest over a given time period, at the credit rating agency considers the issuer to be at low fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid. risk of default; likewise, a low rating indicates high risk end of which the initial amount borrowed is repaid. Bunds of default. Standard & Poor’s, Fitch and Moody’s are Also referred to as a bond. Fixed income securities issued by the German the three most prominent credit rating agencies. Gilts government. Default means that a company or government is Fixed income securities issued by the UK government. unable to meet interest payments or repay the initial Capital return investment amount at the end of a security’s life. Government bonds The term for the gain or loss derived from an Default Fixed income securities issued by governments, investment over a particular period. Capital return When a borrower does not maintain interest that normally pay a fixed rate of interest over a includes capital gain or loss only and excludes income payments or repay the amount borrowed when due. given time period, at the end of which the initial (in the form of interest or dividend payments). investment is repaid. Corporate bonds Diversified/Diversification High yield bonds Fixed income securities issued by a company. The practice of investing in a variety of assets. This Fixed income securities issued by companies with a low They are also known as bonds and can offer higher is a risk management technique where, in a well- credit rating from a recognised credit rating agency. interest payments than bonds issued by governments diversified portfolio, any loss from an individual They are considered to be at higher risk of default as they are often considered more risky. holding should be offset by gains in other holdings, than better quality, ie higher-rated fixed income thereby lessening the impact on the overall portfolio. securities but have the potential for higher rewards. Coupon Equities ‘Default’ means that a company or government is The interest paid by the government or company Shares of ownership in a company. unable to meet interest payments or repay the initial that has raised a loan by selling bonds. investment amount at the end of a security’s life. Face value The initial price of a bond, also known as par value. continued on next page 13