A
Accumulation fund: A type of superannuation fund where the benefit a member receives reflects total contributions plus the amount the investment has earned, less expenses and tax, this reflects the performance of the fund’s investments.
All Ordinaries: An accumulation Index that measures movements in the value of the major shares listed on the Australian Stock Exchange (ASX). It takes into account the capital appreciation and dividends of the 500 largest listed companies.
Alternative investments: Investments that sit outside the mainstream asset classes of shares, bonds and cash
Angel Investor: A type of investor (also referred to as seed investors) that provides funding during the earlier development stages of a business with less certainty of success.
Annuity: A regular income stream paid to an individual from a lump sum investment, usually to generate a retirement income stream.
Asset allocation: The process of balancing risk and return in a portfolio by investing across different asset classes.
Asset Classes: A category of investments with similar performance characteristics and risk/return profiles and that are subject to similar regulations or laws
B
Balanced fund: A fund or portfolio which invests in all major asset classes. i.e. cash, fixed interest, property and shares, domestically and internationally. It provides long term capital growth and a reasonable level of income.
Balloon payment: An optional lump sum remaining at the end of an asset purchase agreement.
Base rate: The rate at which a country’s central bank lends to other banks.
Bonds: The means for one entity to raise money by borrowing from another
Broker: An individual who executes investors’ orders to buy or sell securities.
Brokerage: A fee charged by a financial adviser or stockbroker for a transaction. It is sometimes referred to as a commission.
C
Capital: The value of an investment in a house or business, represented by total assets less total liabilities.
Capital gains tax: The tax levied on the gains of an investment, payable only when the capital gain is realised by selling the investment.
Capital growth fund: An investment fund that principally invests in assets most likely to increase in value, such as property and shares with little dividends.
Commission: A fee paid to a financial adviser or stockbroker for a financial transaction or advice. It is sometimes referred to as brokerage.
Compound interest: The interest calculated on the principal and interest already accrued.
Consumer Price Index (CPI): An index measuring the weighted average prices for a selection of goods and services. This allows a comparison of the relative cost of living over time, which is known as inflation.
Corporate bonds: A security issued by a company that acknowledges a stated sum is owed and will be repaid at a certain date. Like a government-issued bond, a corporate bond usually pays a stipulated amount of interest throughout its life to the holder.
D
Debt security: A financial security that represents borrowings that the issuer must repay.
Defined Benefit Fund: A superannuation fund that defines the member’s retirement benefit as a multiple of their salary. The multiple is usually based on the member’s period of service and level of contributions made over the period of employment. The opposite of a defined benefit fund is a defined contribution or accumulation fund.
Deal Flow: A term used to describe the number of proposals being received by a private equity fund on some calendar basis (e.g., three deals a week).
Derivatives: Securities that derive their value from another physical asset, also known as synthetics. Examples of derivatives include futures and options.
Dividend: The payment to shareholders from a company’s profits.
Due diligence: An investigative and analytical process that precedes a commitment to invest. The purpose is to determine the attractiveness, risks and all issues relating to a transaction with a potential investee company.
E
Eligible Termination Payment (ETP): A payment from a superannuation fund, approved deposit fund or employer.
Equity: (1) A share investment. Or (2) The part of an asset owned by an individual over and above any debt against that asset.
F
Fair value: The latest stated value of an investment. This could be based on the current market value of a publicly traded security or the sale price of the investment when sold.
Financial leverage: The use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity.
First loss capital: Refers to socially and environmentally-driven credit enhancement provided by an investor or grant-maker who agrees to bear first losses in an investment in order to catalyse the participation of co-investors that otherwise would not have entered the deal.
Fixed interest: Interest paid on investments such as bonds and debentures, paid at a predetermined and unchanging rate for a specified period.
G
Gross Domestic Product (GDP): A measure of the value of the products and services produced by a country during a specific period.
Growth assets: Assets such as shares and property expected to provide strong investment returns over the long term.
Growth fund: An investment fund that is predominantly invests in growth assets.
H
Hedge funds: A managed pool of money (typically a limited partnership) that utilises alternative investment strategies to generate returns.
Hedging: A strategy designed to offset risk.
Hybrids: Securities that combine elements of debt securities and equity securities.
I
Indexing: A low-risk investment management strategy in which, the investor trades according to the performance of a market as a whole, rather than particular stocks or assets.
Inflation: The increase in the prices of goods and services.
Investment: An asset purchased to produce capital growth or income, or both, for the owner.
J
J Curve: A graphical representation of the performance of a private equity investment where a significant gain follows an initial loss.
K
Kangaroo bond: A bond issued by a foreign company or body (such as the Asian Development Bank) in Australian dollars.
L
Lessor: The owner of the goods in a lease, usually a finance company or bank.
Leverage: The use of borrowed capital to increase the potential return of an investment.
Liquidity: The degree to which assets are held in cash or in a form that can easily and immediately be converted into money.
Lump-Sum: A cash payment from a superannuation fund.
M
Managed investments or funds: A unit trust that allows investors to pool their money with other investors so that the fund can buy a wide range of investments. These investments are managed by a professional fund manager, who makes the investment decisions.
Margin loan: A line of credit established to invest in shares or unit trusts, often used to maximise your returns.
Maximum Deductible Contribution (MDC): The maximum amount of super contributions per annum for which a tax deduction is allowed. The limit is dependent on your age.
N
Negative gearing: Refers to purchasing an investment with borrowed funds where the interest on the borrowing exceeds the income from the investment.
Net asset value: The value of a company, or managed fund, calculated as the assets less liabilities.
Nominal rate: The interest rate on a bond without any adjustments for inflation.
O
Operating lease: A pure rental agreement with no documented residual amount. Goods can be returned to the financier when the agreement expires. Commitments need only be disclosed by way of a footnote to the published accounts and, should the asset be sold for less than the residual amount, the user cannot be held liable. Usually limited to motor vehicles, computers, and multi-purpose industrial equipment.
Options: A type of derivative. It is a contract giving the holder the right but not the obligation to buy or sell an underlying asset at a specified price during a given period.
P
Pooled investment: An investment where a number of individuals place their money with a professional manager who manages the total fund on their behalf. Also known as a unit trust or managed investment.
Portfolio: A list of holdings in securities owned by an investor or institution.
Post 1983 component: The part of a superannuation benefit that relates to employment service, or superannuation fund membership, since 30 June 1983.
Pre-1983 component: The part of a superannuation benefit related to employment service, or superannuation fund membership, before 1 July 1983.
Property funds: A managed investment the term property generally refers to investments in property securities – property trusts listed on the stock exchange. Funds that invest in property securities allow diversification by investing across various property sectors such as commercial, office, industrial, hotel, and retail properties.
Product Disclosure Statement: A legal document lodged with the Australian Securities and Investments Commission (ASIC) which details how the fund operates, outlining the nature of the fund(s), how to invest and what returns to expect from the investment.
Q
Quant: A specialist usually working in portfolio management or bond research who develops systems that map past movements in financial markets intending to predict future equity, commodity and currency values.
R
Real interest rate: The nominal (quoted) interest rate minus the inflation rate.
Realise: To sell an investment.
Realised capital gain: When an investment is sold and a profit is made.
Redemption/redeem: To withdraw or sell an investment.
Reinvest: Where income from an investment is used to make an additional investment, generally at no fee, to allow greater returns through the benefit of compound interest.
Real return: Is the rate of return on an investment in excess of inflation. For example, if the rate of return is 10% but the inflation rate is 3% the real return is 7% (= 10-3%).
Rollover/rolling over: The transfer of a superannuation benefit or an eligible termination payment within the superannuation environment between superannuation funds, or from a superannuation fund to a pension or annuity.
S
Secured Debt: A debt that allows a bank to first claim on specified assets in the event of default.
Sector: A group of securities with common characteristics, such as resource sector companies or financial companies.
Security: (1) An asset traded on a financial market, such as shares or bonds. Or (2) An asset pledged to ensure the repayment of a loan.
Shares: Represents ownership in part of a company. When you buy a share in a company, you become a joint owner of the business and share in the future of that business. Also known as an equity.
Stockbroker: A person who buys and sells securities on behalf of others in return for brokerage or commission.
Superannuation: A tax-effective means of putting aside money during your working life for use in retirement.
Surcharge: A superannuation surcharge is a tax paid by high-income earners on certain superannuation contributions.
Syndicate: A collection of investors will pool their financial resources to simultaneously purchase securities from a corporation.
T
Tax deduction: An expense that can be offset against assessable income.
Tax rebate/offset: The amount of money that reduces the level of tax payable.
Trust: An arrangement whereby an asset is held by a person or persons (the trustees) for the benefit of some other person or persons (the beneficiaries).
Trust deed: The formal legal document that sets out the rules governing how a fund operates.
Trustee: An individual or company with the duty to ensure that the trust deed rules are adhered to. Trustees are generally responsible for running superannuation plans and are bound by the trust deed, the relevant trust law, and the SIS Act.
U
Underwriter: A firm which buys an issue of securities from a company and resells it to investors.
Unlisted assets and investments: This refers to any investments that are not listed on a stock exchange.
Unrealised capital gain: This occurs when an investment increases in value but is not sold or realised.
V
Venture capital (VC): The capital invested in start-up companies with a potential to grow.
Vested benefit: The amount of vested benefit is the minimum sum that must be paid to a superannuation fund member when the member becomes entitled to a benefit on withdrawal (e.g. on resignation).
Volatility: A measure of risk based on the price movements of an asset
W
WDR 90 Day Bank Bill Index: Measures the way Australian bank bill rates change over time. It is the industry-accepted proxy for bank bill rates. All income is reinvested.
WDR Composite Bond Index: A fixed interest market index. It measures the change in market price of a pool of fixed interest securities (50% Government bonds, 38% semi-Government securities, 10% corporate bonds and 2% mortgage-backed securities.) All income is reinvested.
WDR Inflation Linked Bond Index: An index representing the change in prices of the major securities issued in the inflation-indexed bond market. All income is reinvested.
Weighting: The percentage or proportion of the portfolio invested in each asset class.
Y
Yield: The dividend, or interest rate, on an investment expressed as a percentage of the price.
Yield curve: A chart that shows the relationship between yield to maturity and time to maturity for a given number of bonds.
