Funds are divided into portions called shares. For income shares any income earned by the fund is paid out to investors at periodic intervals (rather than automatically reinvested).
Income yield (also known as running yield)
By dividing the gross income of an investment by its current market value, you can calculate the gross income yield for the investment.
A type of fund that aims to replicate the performance of a particular index (benchmark) by investing in all or a representative proportion of the stocks within that index. For example, a FTSE 100 tracker fund will aim to replicate the performance of the FTSE 100 index by investing in all or a representative proportion of the stocks of that index.
The devaluation of currency over time, where it costs more money to buy the same goods. The effect of inflation reduces the value of money over time, as the following example illustrates:
The future value of £1,000, assuming inflation is 2.0% each year
After 10 years
After 20 years
Infrastructure assets are physical assets which provide basic vital functions to a business or country. These may include systems which facilitate: power generation, sewage, transportation, communication etc.
Investment Association (IA)
The Investment Association (IA) is the trade body that represents UK investment managers. The Investment Association sectors divide fund into groups (known as sectors) to make them easier to compare.
ISA (Individual Savings Account)
A vehicle that allows individuals to invest tax-free. UK residents can currently invest up to £20,000 each year in an ISA. Cash ISAs operate as savings accounts; stocks and shares ISAs allow you to invest in shares, funds, exchange-traded funds and investment trusts.
Investment bonds are life insurance policies. They’re not the same as corporate bonds, premium bonds or fixed-rate bonds but are effectively a type of investment plan.You normally have a choice of funds to invest in within investment bonds (e.g. with-profits or unit-linked). Both have the same tax rules: tax is paid on both growth and income accrued in the fund(s) by the insurer.
Investment funds are collective investments which pool your money in with other investors to give you a stake in a larger, ready-made portfolio. An investment fund can offer you an affordable way to invest in lots of different assets and, in many cases, without the pressure of making your own investment decisions. They can make the process of investing a lot simpler for you.
The collection of investments that you hold. Your portfolio should be aligned to your investment profile and risk appetite. It should generally incorporate a range of funds and asset classes that best suit your preferred aims and objectives.
The investment philosophy that best expresses or reflects your investment objective.
The investment approach adopted by an individual fund manager or investment house, hence the term ‘house style’. There are many investment styles including:
- Value, where managers seek to identify and invest in sound but undervalued companies;
- Growth, where managers seek companies with the right pre‑conditions for growth, (see Growth Approach)
- Momentum, where managers seek to exploit the tendency for share prices to continue to move in a particular direction in the short-term.
A close-ended collective investment fund pooling investor capital across a number of assets. ‘Close-ended’ means there is a fixed number of shares in issue, which won’t change as individual investors buy into or sell out of the fund. As it is listed on a UK stock exchange, the share price of an investment trust is subject to normal market forces (e.g. investor sentiment and demand) and as such can move independently of the value of the trust’s underlying assets.
Investment grade bonds
Credit ratings indicate the likelihood that an issuer of a bond will be able to make their payments. Investment grade bonds have achieved or exceeded a minimum credit rating awarded by a credit rating agency. Therefore they are considered lower risk than bonds with a lower credit rating.