key terms in investment

8/2/2019 Key Terms in Investment

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1) ACCOUNT VALUEThe total rupee value of mutual fund units in a unit holder's account. Account value is

calculated by multiplying the number of fund units held in an account by the current net

asset value per unit (NAV). If the account includes more than one fund, the results of this

calculation for each fund are added together to obtain the value of the account.

2) ACCOUNT STATEMENTMeans statement of transactions in Units in the folio of the Holder.

3) ACCRUED INTERESTInterest income owing on a bond or a debenture since the last payment was made, but not

yet paid. The purchaser of the bond or debenture will pay the market price, plus the

accrued interest.

4) ACQUISITION COSTCost of acquiring units of a mutual fund, including commissions and fees paid at the time

of purchase.

5) ANNUAL MEETINGYearly shareholder's meeting at which the company's directors report on the preceding

year and shareholders vote on matters of importance to the company. Annual meetings

apply only to funds that are established as mutual fund company.

6) ANNUALIZED RATEThe rate of return that would be earned if the security were invested for a one- year term.

7) ANNUAL REPORTAn audited formal financial statement and report on its operations, distributed by a

publicly held firm to its shareholders after its fiscal year-end.

8) ANNUITYA contract, usually between an insurance company and an individual, under which an

amount is paid to the insurance company in exchange for the right to receive future

regular payments, over a specified period of time.

9) ASSETEverything a company owns or is due to the corporation. (2) All property (personal and real

estate), financial investments (including mutual funds) and other financial resources


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owned by an individual.

10)ASSET ALLOCATIONThe process of selecting the optimal combination of securities from the different asset

classes for an institutional or individual portfolio. Over time the portfolio will be re-

balanced as markets change or the circumstances of an investor's personal and financial

situation change in the case of an individual portfolio.

11)ASSET CLASSThree types of asset classes that can be held in a portfolio: cash or cash equivalents

(treasury bills, commercial paper and other short-term promissory notes), fixed income

investments (bonds, debentures and preferred shares) and equity securities (common

shares).

12)AUDITAn intensive examination of the accounting and financial procedures and practices of a

company or mutual fund, and is carried out by auditors. See Auditors.

13)AUDITORSChartered accountant firm, responsible for conducting an independent audit. They are

responsible for professionally examining and verifying a company's accounting documents

and supporting data for the purpose of rendering an opinion as to their accuracy,consistency and fairness.

14)AUTHORIZED SHARESThe total number of shares declared by a corporation at the time of its incorporation that

can be issued, limited by its articles of incorporation. In the case of a mutual fund

corporation, the charter permits an unlimited number of shares to be issued on a

continuous basis.

15)AVERAGE COSTWeighted average of the price paid per unit, based on the total units purchased in an

account.

16)AVERAGE MATURITYAverage time remaining to maturity of bonds in a portfolio. A longer average term to

maturity will provide the investor with a higher yield, but also subjects the investor to

potentially higher risk if interest rates were to rise.

17)AVERAGING DOWN


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Buying more of a security at a lower price than the original investment. The primary aim is

for the investor to reduce the average cost of their security.

18)ALLOCATION SCHEMEMeans the allocation scheme(s) offered by the Pension Fund Manager in light of the

Prescribed Allocation Policy issued by the Commission from time to time.

19)ANNIVERSARY DATEMeans the Business Day following the completion of one full year from the opening of the

Individual Pension Account with the Pension Fund Manager and thereafter the Business

Day following completion of subsequent one full year.

20)BACK-END LOADMeans Sales Load deducted from the Net Asset Value in determining the RedemptionPrice.

21)BALANCE SHEETA financial statement showing a company's or fund's assets, liabilities and shareholder's

equity.

22)BALANCED FUNDA mutual fund comprised of a mix of various assets, including money market investments,fixed income securities and equities. The percentage holding of the type of asset class will

depend on (1) market conditions and/ or (2) the fund's investment objective.

23)BASIC POINTOne basis point equals one one-hundredth of a percentage point. Thus a 250 basis point

increase is equal to a 2.5% increase.

24)BANK RATEThe rate at which the State Bank makes short-term loans to chartered banks and other

financial institutions. It is also the benchmark for prime rates set by financial institutions.

25)BANKERS' ACCEPTANCESA short-term debt instrument issued by a bank for a non-financial company backed by the

bank's promise to repay if the borrowing corporation defaults.

26)BEAR MARKET


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A declining securities market, with prices decreasing in value over time. Opposite from a

Bull Market.

27)BEARER FORMA security which does not have the owner's name registered on the books of the issuer. The

name of the owner will not be found on the security. The coupons attached to the bond

must be clipped and sent to the issuer in order to receive the coupon payment. Bonds in

bearer form should be treated like cash.

28)BENEFICIAL OWNERAn individual who benefits from the assets owned in an account. This individual may be

different from the registered owner, as in the case of a nominee.

29)BENIFICIARYAn individual named as the recipient of a gift which can be made through a trust or who

will receive an inheritance upon the death of another individual.

30)BETARepresented by the symbol . A statistical tool used to measure the volatility (risk) of a

stock. The volatility of a stock is measured relative to a stock market (represented by an

index), which always has a beta of 1. A stock that is more volatile than an index has a beta

greater than 1; while a stock which is less volatile than a market has a beta less than 1. Forexample should a stock market increase by 10%, the price of a stock with a beta of 2

should increase by 20%, indicating that it is twice as volatile as that particular market.

31)BID PRICEThe highest price a buyer is willing to pay for a security.

32)BLUE CHIPA high grade investment. Usually an active well known common share with a record of

continuous payment of dividends.

33)BOARD OF DIRECTORSA group of individuals elected by the shareholders of a company, who are empowered and

given the responsibility to manage the affairs of the company in a diligent and prudent

manner. The directors are usually elected at the annual general meeting of the company.

34)BONDAn IOU of the federal government, a provincial government or a corporation (if secured by

specific assets). It is a fixed income security, issued with a maturity of one year or more to


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raise funds in the long-term. It is an evidence of debt, in which the issuer guarantees to pay

the investor a specific amount of money, interest, for a period of time, and the eventual

repayment of the principal on the maturity date.

35)BOND FUNDA mutual fund whose primary investment objective is to invest in high quality fixed-income

investments in order to offer its investors regular income streams.

36)BOOK VALUE OR BREAK-UP VALUEThe book value of a stock of a company is calculated from a company's balance sheet, by

adding all the assets and deducting them from the total liabilities. (2) The original cost of

all the investments held within a mutual fund plan, less any withdrawals, plus any

reinvested dividends and income.

37)BROKERSecurities firm or duly registered individual employed by such a firm. A broker does not

usually own the securities that are bought or sold, but rather acts as agent for the buyer or

seller and charges a commission for its services.

38)BULL MARKETAn advancing securities market, with prices increasing in value over time. Opposite from

Bear Market.

39)BUSINESS CYCLEA several year period in which the economy generally grows and then contracts (recession)

and then resumes an up-trend.

40)BUSINESS DAYDays when corporations and governments are open for business. It excludes Sundays and

certain statutory holidays.

41)BUY-AND-HOLD STRATEGYA long-term investment strategy where investments are purchased for their future

potential and are held by the investor regardless of their short-term.

42)CALL OPTIONAn option contract in which the buyer has the right, but not the obligation, to purchase an

underlying security at a fixed price, prior to an agreed-upon expiry date. Call options are

usually purchased by investors who believe that the underlying security will go up in value.


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43)CALL PREMIUMThe difference between the call price and the par value of a callable bond or callable

preferred share.

44)CALL PROTECTIONShares that cannot be called for a specific period of time after they have been issued.

45)CALLABLEA bond or preferred share that can be called by the issuer, at a specific price, usually when

interest rates have declined since the bond or preferred share was originally issued.

46)CAPITALFrom an economic perspective, it represents the inputs into production, such as machinery,

factories and buildings. (2) From a company perspective, it represents the equity interest in

a business or net worth (the difference between the total assets and total liabilities),

consisting primarily of common and preferred shares. (3) From an investor's perspective, it

represents all that is owned by an individual, including home, securities, cash and any

other investments. (4) In an investment sense, it is the total money available through

savings for investment.

47)CAPITAL ASSETSFor accounting purposes, fixed assets of a business including land, buildings, machinery or

furniture, not intended for sale. (2) For tax purposes a capital asset is a stock, bond,

mutual fund, option, real estate and other property, primarily purchased as a long-term

investment, with income producing capabilities.

48)CAPITAL COST ALLOWANCEAllowing for the depreciation in value of a fixed asset for tax purposes.

49)CAPITAL GAIN (or Capital Appreciation or Capital Growth)Results when a profit is realized from the difference between the purchase price of a

capital asset (stocks, bonds, options, mutual funds, real estate and other property) and the

selling price of that asset.

50)CAPITAL LOSSResults when a loss is realized from the difference between the purchase price of a capital

asset (stocks, bonds, options, mutual funds, real estate and other property) and the selling

price of that asset.

51)CAPITAL STOCK


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All the outstanding shares in a corporation, including preferred and common shares.

52)CASH EQUIVALENTSAssets that can be converted quickly into cash without a loss and include T-bills,

commercial paper, short-term bonds and short-term paper.

53)CASH FLOWA company's reported net income generated from its operations, plus amounts charged for

depreciation, depletion, amortization, deferred income taxes and minority interest.

54)CERTIFICATEA document representing ownership of a certain number of shares or fixed income

investments such as bonds.

55)CLOSED-END FUNDAn investment fund that issues a specific number of shares; its capitalization is fixed. The

shares are not redeemable, but are readily transferable and trade on either a stock

exchange or the over-the-counter market.

56)COLLATERALSecurities or other property pledged by a borrower as a guarantee for repayment of aloan.

57)COMMERCIAL PAPERShort-term promissory note, issued by well-established corporations to raise funds to meet

short-term needs, traded in the money market.

58)COMMISSIONA fee charged by a stock broker or financial advisor or mutual funds sales representativefor buying or selling securities as agent on behalf of an investor.

59)COMMON SHARESA class of stock that represents ownership in a company. They usually carry a voting

privilege and entitle owners to share in the company's profits.

60)COMPANYSee Corporation.


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61)COMPOUNDINGIndicates that the return earned on an investment will increase, if the returns are

reinvested, whether it be interest and/ or dividend income and/ or capital gains. The rate

that is used to calculate the returns is based not only on the original investment, but also

on the accumulated returns of prior terms.

62)CONFIRMATIONA printed document identifying details of an investor's purchase and/ or sale of a security.

The confirmation is usually sent out by the broker, investment dealer or fund company.

63)CONSTITUTIVE DOCUMENTmeans the Trust Deed that is the principal document governing the formation,

management or operation of the Trust.

64)CONTINUOUS DISCLOSURESecurities regulators require organizations and individuals report information that is

material to them within a certain period of time. This may include changes in the affairs of

the company to an advisor's business or personal address change.

65)CONVERSIONA bond, debenture or preferred share which can be converted into the common stock of

the same company.

66)CONVERSION PRICEThe price at which investors can convert their bonds or preferred shares into common

shares.

67)CONVERTIBLEA bond, debenture or preferred share which is convertible by the investor into the common

shares of the issuing company.

68)CORPORATE RESOLUTIONDocument signed by the Board of Directors of a corporation that identifies the people with

signing authority on behalf of a corporation for a mutual fund account.

69)CORPORATIONA legal, taxable organization chartered under either provincial or federal law. Ownership

of a corporation is held by its stockholders. The corporation can be private (limitations onthe number of shareholders as well as restrictions on rights of shareholders to transfer


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shares) or public (shares trade in an open market with no restrictions). Also referred to as a

company.

70)CORRECTIONA short-term drop in stock prices bringing the market back into line as determined by

investment professionals.

71)COUPON RATEThe annual rate of interest paid on a bond.

72)CREDIT RISKSee Risk.

73)CURRENT ASSETSAn asset that can be converted into cash within a year. Examples include cash, cash

equivalents, and marketable securities, accounts receivable and inventories.

74)CURRENT LIABILITYMoney that has to be paid by a business within a year. Examples include accounts payable

and short-term loans.

75)CURRENT YIELDThe yearly income from an investment, expressed as a percentage of its current market

price. On a bond, it is the annual interest divided by the current market price of the bond;

for a stock, it is the annual dividend divided by the current market price of the stock.

76)CUSTODIANA bank or a depository company that according to securities law holds the assets (cash and

securities) of a mutual fund on behalf of the fund. This safekeeping of the assets serves toprotect investors and helps facilitate easier transactions for the fund when securities are

bought or sold.

77)CONTRIBUTIONMeans an amount as may be voluntarily paid by a Participant at any frequency to the

Trustee for credit to the Individual Pension Account of a Participant, subject to any

minimum limit as specified in the Offering Document.

78)DEALER


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A firm or individual that specializes in the buying and selling of securities from or to

another firm or the public.

79)DEBENTUREAn IOU of a municipal government or a corporation backed only by the general credit of

the issuer and not secured by specific assets. It is a fixed income security, issued with a

maturity of one year or more to raise funds in the long-term. It is an evidence of debt, in

which the issuer promises to pay the investor a specific amount of interest for a period of

time, and the eventual repayment of the principal on the maturity date.

80)DEBTReference to amounts that are owing to be repaid in the future. Examples include bonds,

debentures, mortgages and short-term notes.

81)DEBT TO EQUITY RATIOfinancial ratio, identifying the amount of debt incurred by a corporation to fund its growth,

relative to its equity.

82)DEFAULTThe failure of a debtor (issuer) to make the coupon payments and/ or repayment of

principal on the due date.

83)DEFAULT RISKSee Risk.

84)DEPRECIATIONSystematic charges against earnings to write off the cost of an asset over its estimated

useful life representing the loss in value due to 'wear and tear' through use. It is a

bookkeeping entry and does not involve the expenditure of cash.

85)DERIVATIVESThese are securities whose value and returns are determined by or "derived from" the

value of an underlying instrument such as a stock, bond, commodity, currency, market

index or some other investment. Examples include rights, warrants, options and futures.

86)DIRECTORAn individual elected by shareholders to the Board of Directors to oversee the operation of

the business. The directors appoint the President, senior executives and officers of the

company. They also decide when dividends are to be paid.


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87)DISCLAIMER CLAUSERegulators require that all prospectuses have a disclaimer clearly indicating that the

regulators/ securities authorities have in no way passed upon the merits of the securities

being offered for sale.

88)DISTRIBUTIONSPayments made by a fund to its investors representing dividends, capital gains and interest

income.

89)DISTRIBUTIONS FUNCTIONmeans with regard to:

a. Receiving applications for issue of Units together with the aggregate OfferPrice for Units applied for by the applicants;

b. Issuing of receipts in respect of (a) above;c. Interfacing with and providing services to the Holders including receiving

redemption applications, transfer applications, conversion notices and applications

for change of address or issue of duplicate Certificates for immediate transmission,

in accordance with the instructions given by the Management Company or the

Trustee, to the Management Company or the Transfer Agent as appropriate; and

d. Accounting to the Trustee for all moneys received from the applicants for issuanceof Units; payments made to the Holders on redemption of Units; and expenses

incurred in relation to the Distribution Function.

90)DISTRIBUTORFinancial organizations that have both the authority and infrastructure to buy and sell

mutual funds to the investing public. This includes investment dealers, brokers, banks,

mutual fund dealers, insurance companies and mutual fund management companies,

registered as dealers.

91)DIVERSIFICATIONSpreading investments among different asset classes; purchasing different securities in

different companies, in different businesses, in various locations at different times. A

method used to reduce and/ or eliminate unsystematic risk.

92)DIVIDENEDGenerally paid out of retained earnings and determined by the company's board of

directors and paid out to its preferred and/or common shareholders. The dividend may be

paid in cash or in additional shares. Common share dividends fluctuate with the

profitability of a company, while its preferred share dividends are fixed. Dividend

payments are not legal obligations.

93)DISTRIBUTION COMPANY/COMPANIES


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Means individual(s), company(ies), firm(s), Bank(s) or other entity(ies) appointed by the

Pension Fund Manager for performing any or all of the Distribution Functions and shall

include the Pension Fund Manager itself, if it performs the Distribution Function.

94)ELECTRONIC FUNDS TRANSFER (EFT)A method of transferring payments electronically between the bank accounts of the payer

and payee.

95)EQUITY FUNDA mutual fund whose primary investment objective is growth. The fund would invest in

growth oriented securities such as common shares, with growth potential.

96)EQUITY INVESTMENT RISKSee Risk.

key terms in investment

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