Fund Expert: Jargon Buster for Financial Terms

Here we define some common terms you are likely to encounter as an investor. 

Absolute Return

Absolute return strategies aim to provide positive returns regardless of market conditions.

Acc/Inc Share Class

For accumulation share classes, any income earned is automatically reinvested. For income share classes, any income earned is paid out to investors at periodic intervals.

Actively/Passively Managed

Active management is where the fund manager seeks to add value by making decisions on which investments to buy, sell or hold depending on, for example company, market or economic factors. Passive management is where investments are not chosen by a fund manager, instead these are selected automatically the match an index or part of the market.

Association of Investment Companies (AIC)

Trade association that represents UK investment companies, such as investment trusts, venture capital trusts and other closed-ended funds.

Alternative Investment Market (AIM)

A sub-market of the London Stock Exchange containing smaller, growing companies which are considered riskier than their main market peers.


The excess return generated by an investment versus a particular benchmark.

Annual Management Charge (AMC)

The annual fee the fund provider charges to manage the fund, shown as a percentage.

Asset Allocation

How the value of a fund is invested across different investments (‘assets’). For example in different types of assets (such as shares, bonds, property and cash), and/or by geographic areas, and/or by industry sectors such as oil and gas or financial companies. Asset Allocation helps to diversify investment risks and depending on how funds and/or portfolios are invested can produce different levels of risk and investment performance.

Asset Class

This is the term given to different types of investment. Bonds, shares, property or cash, for example, are each different asset classes. Every asset has its own individual characteristics.

Bear Market

A market in which prices fall over an extended period.


A measure against which investment performance can be targeted, constrained and/or compared. A benchmark will normally use, or be based upon, a market-based index or the average performance of similar investments.

Bid/Offer price

Some funds are dual-priced, which means they have one price to buy into the fund, and another for selling out of the fund. This is to help cover the costs of buy and selling the underlying assets in the fund. The difference between the sell price and the buy price is referred to as the bid-offer spread.


Essentially a type of loan issued by governments, companies, local authorities and other institutions as a way of raising funds. Bonds normally promise to pay a fixed amount of interest (often referred to as ‘coupons’) on set dates, usually twice yearly, until maturity, when the loan is repaid in full. Bonds are tradable.

Bond Fund

A fund that invests in bonds, or other debt securities.

Bond Yield

The amount of return an investor earns on a bond holding.

Bull Market

A market in which prices rise over an extended period.


A measure of a firm's capital value, which is calculated by multiplying the amount of outstanding shares by the current share price.

Capital Gains Tax (CGT)

A tax paid on profits made from selling investments like funds or shares.


The annual interest rate stated on a bond when it’s issued, which is typically paid out in installments every six months.

Consumer Price Index (CPI)

The Consumer Price Index is a measure of inflation. The index measures the weighted-average cost of a basket of goods and services to a typical consumer.


Spreading your money across lots of different investments, with the aim of generating better longer term returns while also reducing exposure to individual investments/asset types.


The income from a share-based investment. Many companies will pay dividends from their profits twice a year. The mid-year payment is known as the interim dividend, and the end-of-year payment is called the final dividend.

Dynamic Fund Rating

A Dynamic Fund Rating is based on a form of momentum investing, which means buying an investment (in this case a UT/IT) which is already performing well on the likelihood that it will continue to perform well. A 5 Star Dynamic Fund Rating should mean a high probability of extra growth, see our Dynamic Fund Ratings - The Evidence page for further details.


Shares in a company that represent a proportional stake in the company’s economic interests i.e. its assets, liabilities, profits and losses. Shareholders are effectively the owners of the company. Shares are tradable.

Equity Fund

A fund that invests in shares of companies.

Emerging Markets

Countries that are progressing toward becoming advanced, usually shown by some development in financial markets, the existence of some form of stock exchange and a regulatory body.

ETF (Exchange Traded Fund)

An investment fund that tracks an index passively but is traded on the stock market and can be bought and sold in the same way as an individual share.


The period immediately before an investment pays out its dividend (income). If shares are purchased ex-dividend, the buyer is not eligible for the next dividend payment. Share prices normally drop the first day they trade ex-dividend to reflect this.


A pool of money that is usually professionally managed. Think of a fund as a cake, and each slice goes to a different place. One slice might be invested in a telecoms company, another slice might be in pharmaceuticals, and some of the cake won’t be invested at all and just held as cash. Each of these slices are referred to as ‘holdings’. There a various types of funds, and whatever type of fund it is will determine the kind of holdings it has. See ‘bond fund’ and ‘equity fund’ for further information.


Investors and asset managers use hedging to reduce or control their exposure to risks. A common way of hedging is through the use of derivatives.

High Yield Bond

A bond that is rated below investment-grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit events, but offer higher yields than investment-grade bonds in order to compensate for the increased risk.


The assets or investments held within a fund or portfolio.

Index Tracker

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.


A general progressive increase in prices of goods and services in an economy. Inflation reduces the value of money over time.

Investment Association (IA)

Trade association that represents UK investment managers, covering unit trusts, OEICs and ETFs.

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 Style

The investment approach adopted by an individual fund manager or investment house, hence the term ‘house style’. There are many investment styles e.g. Value vs Growth, Small Cap vs Large Cap.

Investment Trust

A closed-ended collective investment fund pooling investor capital across a number of assets. ‘Closed-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.

Key Investor Information Document (KIID)

Provide information of a fund’s aims, performance, risks and charges. They are designed so that funds can be compared easily.


The degree to which an investment can be quickly bought or sold on a market without affecting its price. Investments with a higher liquidity can be bought or sold more quickly than investments with a lower liquidity.

Max Loss 5 Year

This represents the longest running consecutive loss without making a gain, over a period of 5 years.

Money Market

The money market is where financial institutions and companies access short-term borrowing and lending.

OEIC (Open Ended Investment Company)

An open-ended collective investment scheme pooling investor capital. The fund is divided into shares, the value of which rises and falls in line with the value of the underlying assets. OEICs quote a single price, this is in contrast to unit trusts which quote a bid price and an offer/sale price.

Ongoing Charges Figure (OCF)

A measure of what it costs to invest in a fund on an ongoing basis. It includes the fee paid to the management company and other operating costs, but excluding transaction costs. 


Investment funds are divided into sectors containing funds of the same type to make them easier to compare. One example is the Investment Association UK All Companies sector. Sectors also refer to the specific industry in which companies operate, for example, Lloyds Bank plc trades within the Banking sector. Other sectors include Oil & Gas, Pharmaceuticals, travel and leisure, and telecommunications, for instance.

SIPP (Self Invested Personal Pension)

A SIPP allows you to benefit from the considerable tax breaks available to those saving for their old age, while managing the investments within the SIPP yourself. You can put up to £40,000 into a SIPP each year and the Government will automatically add 20% basic-rate tax to it. If you pay higher-rate tax you can reclaim the rest of the tax you paid on your pension contributions through you tax code. You can only get the money out at the age of 55 at the earliest, and this age is expected to rise.

Unit Trust

An open-ended collective investment scheme pooling investor capital. The fund is divided into units, the value of which rises and falls in line with the value of the underlying assets. Unit trusts quote a bid price and an offer/sale price, this is in contrast to OEICs which quote a single price.

Vintage Fund Rating

These identify the funds that consistently outperform their peers over the long term.  The selection of funds that manage to achieve this is incredibly small, 97% of funds aren't good enough to qualify as Vintage funds. A Vintage Rated fund is one that is in the top 40% of funds in it's sector for at least 60% of the time. The "time" is the 120 overlapping 6-monthly periods in the last 10 years, with a higher weighting being given to more reent periods.


A measure of the size and frequency of short term changes in the value of an investment.


The income from an asset, usually stated as a percentage of the value of the investment.