HELP CENTRE
Glossary of terms
Accumulation Fund: a fund where the benefit you receive is determined by the contributions you have invested plus investment earnings, less any fees, taxes and insurance premiums.
Allocated pension or annuity: a retirement income investment where you invest your superannuation money and receive an income payment periodically. The value of your account depends on the investment earnings and the amount of income taken less any fees or taxes. Your capital is accessible and the income is set between Government minimums and maximums. You'll receive income as long as the account balance is greater than zero.
Annuity: a regular income stream paid to an individual from a lump sum investment. Usually relates to a retirement income stream.
Approved Deposit Fund (ADF): a concessionally taxed investment fund for superannuation monies. It is similar to a superannuation fund but an ADF can only accept eligible termination payments and does not allow contributions.
Australian Securities and Investment Commission (ASIC): the government body responsible for regulating companies, the issue and sale of shares and trust units and company borrowings and investment advisers and dealers, in accordance with the Corporations Law.
Asset Allocation: the way your portfolio is invested among the various available asset classes e.g. a fund may have an asset allocation of 30% International Shares, 25% Australian shares, 20% property, 15% fixed interest, 10% cash
Asset Classes: the range of financial investments such as shares, bonds cash and property.
Asset value: the value of assets underpinning a security. These may not be fully reflected in the price of a security
Asset Purchase: otherwise known as leasing. Assets are hired to the user until the last payment of the agreement, at which point the user, referred to as the hirer, becomes the outright owner. Depending on business usage, the interest portion of the repayments and deprecation can be claimed as tax deductions.
Balanced Fund: a type of managed fund where the investment strategy is to have, at all times, some proportion of its investments in all asset classes, creating a risk and return balance between the types of investments.
Bear Market: a market that is decreasing over time. The opposite to a bull market.
Bid: The price at which someone is prepared to buy shares. Also known as "buyer" or "buying price"
Benefit: the entitlement to a lump sum, pension or annuity in relation to superannuation.
Bonds: also known as fixed interest securities. A bond guarantees to repay a fixed amount of money at a pre determined date in the future (called the maturity date). Bonds are generally issued by the Governments, banks or companies to finance investment projects.
Bonus Shares/ Bonus Issue: Additional shares issued by the company to existing shareholders for free, usually in a predetermined ratio to the number of shares already held.
Bull market: a market that is increasing over time. The opposite to a bear market.
Capital gains/growth: occur when the market value of an investment increases
Capital gains tax: a tax on the gains of an investment, payable only when the capital gain is realised by selling the investment
Cash: one of the asset classes. Coin and note currency in circulation and in deposit accounts and money market securities
Cash Management Trust (CMT): a form of managed investment in which the primary investment is cash securities. While offering security, they can also offer the potential for a higher return than an ordinary bank savings account.
CHESS (Clearing House Electronic Sub Register System): The Australian Stock Exchange (ASX) system which electronically records the sale and purchase of registered shares. This allows for much faster and efficient transfer of ownership and settlement of shares than when it involved the transfer of paper share certificates.
Commission: a fee paid to a financial advisor or stockbroker for a financial transaction or advice.
Commutation: the conversion of all or part of an annuity or pension to a Lump Sum.
Compound Interest: interest calculated on the principal and interest already accrued.
Consumer Price Index (CPI): an index measuring the prices of items of a selection of goods and services. This allows a comparison of the relative cost of living over time, which is known as inflation
Contributions: amounts of money placed into a fund
Contributions Tax: tax applied to certain contributions to a superannuation fund.
Deductible: expenses that can be offset against certain income. Some contributions to superannuation funds are tax deductible to individuals.
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 time.
Distributions: income payments from managed investments. Such payments comprise a share of any net income and realised capital gains earned by an investment over a financial year. The components, which generally make up a distribution, are profits from the sale of assets, income and currency gains
Diversification: the spreading of investments over a range of asset classes, sectors and regions to reduce risk
Dividend: the share of profits made by a company to its shareholders. It is normally paid out of after-tax profits and generally relates to the half yearly or full year profit of the company. A dividend paid following the half yearly result is called the Interim Dividend while the dividend following the full year result is called the Final Dividend. The dividend will be announced as a payment of a certain number of cents per share.
Dollar Cost Averaging: Investing a set amount of money, at regular intervals, over a long period of time. The investor could gain an advantage from rises and falls in the investment prices over a period of time by buying more when the price is low and less when the price is high.
Eligible Termination Payment (ETP): a payment from a superannuation fund, approved deposit fund or employer to a person.
Employer Fund: Employer sponsored superannuation where your employer contributes to a superannuation fund on your behalf.
Equity: (1) share investment or (2) the part of an asset owned by an individual over and above any debt against the asset.
Financial Adviser: An authorised representative of a licensed dealer, qualified to provide securities advice.
Fixed Interest Securities: see Bonds
Franked Dividends: dividends on shares, which include an imputation credit
Gearing: (1) a measure of the debt ratio which is the amount of borrowing compared with the equity in an asset. (2) borrowing to invest, such as when purchasing a house using a mortgage or purchasing a share portfolio using a margin loan. Can be positive or negative.
Growth Assets: a term given to assets such as shares and property, which are expected to provide strong investment returns over the long term.
Growth fund: an investment fund, which is predominantly invested in growth assets.
Hedge Funds: an investment fund where the fund manager is authorised to use derivatives and borrowing to provide a higher return, albeit at a higher risk.
Hedging: undertaking one investment to protect against the potential loss in another investment. Options and futures are often used to hedge an investment.
Imputation Credit: taxation credits, which are passed on to the shareholders who have received franked dividends from holding direct shares or managed share investments
Income: regular payments from an investment derived from interest on cash or bonds, dividends on shares, or rent from investment properties.
Interest: the return earned on money which has been invested or loaned, i.e. the price paid for its use
Investment: an asset purchased with the intention of producing capital growth or income or both for the owner.
Initial Public Offering (IPO): the initial raising of capital by public subscription to shares in a company
Lease: an agreement whereby the owner rents goods to the user. It must have a residual amount, which represents the potential sale price of the goods at the end of the lease.
Lessee: the user of the goods in relation to a lease
Lessor: the owner of the goods in a lease, usually a finance company or bank
Lifetime pension or annuity: a retirement income investment. An individual invests their superannuation or other money and receives a regular income. The capital is accessible, and there is little income flexibility. The payments are guaranteed to be paid for the person's lifetime.
Liquidate: to sell an investment or to convert an investment into cash.
Listed Security: a security which is bought and sold via an exchange, such as shares on the stock exchange.
Loss: occurs where the sale price of an asset is less than the initial cost
Managed Investments: see managed funds
Managed Funds: an investment fund where investors pool their money with that of other investors to buy assets such as Australian shares, international shares, bonds and property. The fund is managed by financial investment professionals. Interest in the assets of the fund is divided into units that are issued to each investor. Returns from managed funds can be delivered in the form of both capital growth and income returns.
Management Expense Ratio (MER): a ratio expressing the management, trustee and certain other expenses of a managed fund as a proportion of the net asset value of the fund.
Margin Loan: a line of credit established for the purpose of investing in shares or unit trusts
Marginal Tax Rates: Also referred to as "Tax Brackets". Tax rates increase in a graduated scale. Income is taxed at the rate applicable in each band.
Market Capitalisation: The total number of shares on issues multiplied by their market price
Market Price: The prevailing price of shares traded on the Australian Stock Exchange. May be the last price at which the shares traded, or the most recent price offered or bid for the shares.
Master Fund: A superannuation fund, which has one trustee deed, that allows a number of companies or individuals to join. Investment may be spread across a number of fund managers.
Maximum Deductible Contribution (MDC): the maximum amount of superannuation contributions per year for which a tax deduction is allowed. The limit is dependant on your age.
Money Market: a market where short term securities, such as promissory notes and bills of exchange, are traded. Securities in the money market all have terms of 1 year or less.
Negative Gearing: purchasing an investment with borrowed funds where the interest on the borrowing exceed the income from the investment.
Net asset value: the value of a company, or managed fund, which is the assets less the liabilities
Operating lease: a pure rental agreement with no documented residual amount. Goods can be returned to the financier when the agreement expires.
Ordinary Share: the most commonly traded security in Australia. Holders of ordinary shares are part-owners of a company and may receive payments in cash, called dividends, if the company trades profitability.
Pension: a regular income stream paid to an individual, either by the Government (such as an Age Pension) or from a superannuation benefit.
Pooled investment: an investment where a number of individuals place there money with a professional manager who manages the total fund on their behalf. Also known as managed fund.
Portfolio: the full range of an investor's, or managed fund's investment holdings.
Positive Gearing: purchasing an investment with borrowed funds where the interest on the borrowing is less than the income from the investment.
Profit: occurs when an investment appreciates in value and is sold, or realised.
Property Funds: refers to investments in property securities allow diversification by investing across a range of different property sectors such as commercial, office, industrial, hotel and retail properties. A property securities fund generally invests in property trusts that are listed on the share market, or in property related companies.
Prospectus: a legal document lodged with the Australian Securities and Investments Commission which details how the fund operates, outlining the nature of the fund, how to invest and what returns to expect from the investment.
Real interest rate: the nominal (quoted) interest rate minus the inflation rate
Realised Capital gain: when an investment is sold and a profit is made
Reasonable Benefit Limited (RBL): the maximum superannuation benefit a person can build up over their lifetime, which is taxed on a concessional basis.
Redemption Price: the price at which an investor can withdraw their units from a fund or trust
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
Residual: the lump sum remaining at the end of the lease, to be paid by the lessee.
Return: the amount of money received from an investment each year. Can be comprised of income and/or capital growth and is expressed as a percentage.
Risk: the variability of returns. Generally the higher the level of risk an investor is prepared to accept, the higher the potential return over time may be.
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.
Salary Sacrifice: an amount of pre-tax salary that an employee decides to contribute to their superannuation or allocate fringe benefits instead of taking cash.
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 the 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 equity.
Spouse contribution: a contribution to a superannuation fund from a spouse on behalf of their partner. Taxation offsets may be able to be claimed for such contributions, depending on the spouse's level of assessable income.
Superannuation: a tax effective means of putting aside money during your working life for use in retirement.
Superannuation fund: a concessionally taxed investment fund for superannuation monies. These funds can accept both ETPs and other contributions. Generally balances cannot be withdrawn until age 55 and fully retired. An employer can run these as a company fund, a fund manager as a personal fund or can be self managed by an individual.
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 investment structure in which many individual investors combine their funds to create a large pool of money
Trustee: The person or company responsible for protecting investments of people who invest in a trust.
Undeducted contributions: a term given to after tax money, which is invested in a superannuation fund
Unit price: the price for each unit of a unit trust. This is calculated by dividing the value of the assets of the trust by the number of units on issue to investors
Units: a share of a unit trust or managed fund that represents an entitlement to the asset within the fund.
Unit trust: an investment where a number of individuals place their money with a professional manager who manages the total fund on their behalf. Also knows as a pooled investment or managed fund.
Unrealised capital gain: occurs when an investment increases in value but is not sold or realised.
Yield: the dividend, or interest rate, on an investment expressed as a percentage of the price.
