The return that an asset achieves over a period of time.  This measure simply looks at the appreciation or depreciation (expressed as a percentage) that an asset - usually a stock or a mutual fund - experiences over a period of time.  Absolute return differs from relative return because it is concerned with the return of the asset being looked at and does not compare it to any other measure.

The rate at which rights build up for each year of pensionable service in a defined benefit scheme.

The person or persons notified to the PSO as being responsible for the management of a pension scheme.

Advanced Corporation Tax is the basic rate tax paid on the dividends by a company to the Inland Revenue on behalf of the company's shareholders.  It counts as part payment of a company's shareholders.  It counts as part payment of a company's corporation tax bill.

The Alternative Investment Market, an official Stock Exchange market for investors seeking investment opportunities in smaller, and usually, higher risk entities.

The Alternative Investment Market, an official Stock Exchange market for investors seeking investment opportunities in smaller, and usually, higher risk entities.

A series of payments, which may be subject to increases, made at stated intervals until a particular event occurs. This event is most commonly the end of a specified period or the death of the person receiving the annuity. 

An annuity may take one of a number of different forms including compulsory purchase annuity, deferred annuity, purchased life annuity and reversionary annuity.

Any item of value.

An investor has to decide which type of asset to buy - ordinary shares, bonds, domestic or foreign, property - or indeed simply to hold cash.  Deciding what sort of mix of assets to have is termed asset allocation.

Contributions over and above a member's normal contributions if any, which the member elects to pay to the scheme in order to secure additional benefits.

The flat rate (not earnings related) state pension paid to all who have met the minimum NI contribution requirements.  The amount paid is increased if the recipient is married and a spouse or widow(er) may claim on the record of his/her spouse.

Benefits other than cash provided as a remuneration for an employment.  In a pension context only those which are taxable may be included for pension purposes.

A fund manager (or in appropriate circumstances an agency broker) is required to obtain the best possible price when buying or selling his client's shares.  He will therefore negotiate to obtain ‘best execution'.

Beta Measures the sensitivity of a share or portfolio compared to the underlying market or benchmark.  If a share moves perfectly in line with the market, it has a beta of 1.  If it moves only half as much as the market, its beta is 0.5.

The way in which an economy moves from expansion, prosperity, to recession and then recovery.  In periods of long bull markets, some investors tend to think the cycle no longer exists.

This was introduced by the current government and stands for reasonable levels of charges (C), easy access (A) and fair terms (T) resulting in the acronym CAT. To qualify a fund must meet the following criteria:

Charges - Total charge no more than 1% of net asset value per year. No other charges to be paid by the saver.

Access - Minimum saving no more than £500 lump sum a year or £50 a month.

Terms - Authorised unit trust, OEIC or investment trust with at least 50% invested in shares and securities which are listed on European Union stock exchanges. Shares to be single priced. Investment risk highlighted in literature.

The giving up of a part or all of the pension payable from retirement for an immediate lump sum.

An annuity  which must be purchased on retirement for a member of an insured occupational pension scheme.

These are loan stock issued by the corporate sector, usually with a fixed rate of interest (the coupon) paid over the term of the bond, with repayment on maturity at a predetermined level, usually at par. The risk of default varies depending on the financial strength of the company, and the bonds are credit rated by agencies to indicate the quality of the issue, AAA being the highest rating. Bonds rated below BBB quality are often referred to as the high yield end of the market, where risk of default is significantly higher than for 'investment rated' issues. Corporate Bonds have been an integral part of institutional investment strategies for some time, but only captured the imagination of the retail sector when the investment restrictions governing PEPs were extended in July 1995 to encompass such assets.

An annuity  which must be purchased on retirement for a member of an insured occupational pension scheme.

Shares are direct investments in companies. An option to buy or sell a share is referred to as a derivative instrument since its value depends not on itself, but is derived from the value of the underlying share. A number of derivative instruments have been developed in recent years, such as options and futures, and a number of further devices are likely to be invented, both on the bases of shares and other securities. It should be noted that although investors may (or may not) act as speculators when buying or selling these instruments, the result is often to make the pricing of the underlying security more accurate. In this sense the derivative instrument, contrary to what is sometimes suggested, may well reduce the cost of capital.

Where investment managers are given total authority to manage assets as they see fit, i.e. they have 'discretion' to make decisions as if they were beneficial owners (see Non-Discretionary).

Often the benefits, or the contributions from which they are to be provided, are also decided individually for each member.

A policy which provides a lump sum at a fixed future date or on earlier death.

Bonds issued by the British Government are called 'gilt-edged' because of their high level of security. The attractions of gilt-edged stocks have, in many periods (including the period since the Second World War) been diminished by the impact of inflation which eats away at the true value of the capital and income provided by even the most secure of bonds.

An investor taking up an investment position is, by that action, exposed to risk. If he then takes steps to 'hedge' that risk, it means that he is taking up other investment positions which will reduce the risk run by the first commitment. For example, an investor buying a portfolio of American shares at a time when he believes the dollar may go down, may hedge against the currency movements by taking out a contract to sell dollars; the investor's only remaining risk is then the risk contained in the portfolio of shares itself. Hedging quite often requires financial instruments such as futures and options, sometimes in complicated packages. Although many of the devices used to hedge have a speculative look about them, hedging is in fact a conservative operation, which sets out to reduce the risk run by the investor.

A type of ISA which allows an investor to invest in one of two types of elements (stocks and shares and cash). An investor may invest in up to Mini-ISAs in a tax year as long as they are of different elements. These can be held with one manager or up to three different ISA managers. As of 6.4.2005 Insurance Mini ISAs are no longer available as an individual element. These are however an allowable investment under stocks and shares from then.

A measure of how easy it is to trade in a bond.  The better the liquidity the easier it is to trade.  For a bond with poor liquidity it may be difficult to obtain a price in volatile market conditions.

A measure of the amount of ‘liquid' assets a company holds.

The price at which an asset might reasonably be expected to be sold in an open market.

Although current market value should be defined by reference to actual current conditions of the market, for practical purposes other considerations may be postulated, e.g. adopting a ‘willing buyer, willing seller’ basis.

The nets assets of a company for equity shareholders are the total assets of the company, minus all the liabilities in the balance sheet, minus all prior capital (including debentures, loan stocks and preference shares). The 'NAV' is this sum divided by the number of shares, to give a figure per share.

This is income received by (say) an investment trust such as interest on gilts, deposits and foreign company dividends but not UK company dividends, which does not carry with it a tax credit indicating that ACT has been paid in respect of it. Unfranked income is subject to corporation tax in the hands of a trust and therefore receives less favourable treatment for tax purposes than franked income. However, interest paid by the trust and any management fees paid to its investment managers can be set against unfranked income, thus reducing the total of income which is subject to corporation tax (see Franked Income).

A unit trust is a legal vehicle used for investment purposes, in which the money subscribed by unit holders is invested for some common investment aim, usually in ordinary shares. Investors may subscribe to units, which can be created if necessary, at some subsequent date the investor may sell the units back to the managers, in which case they are cancelled or sold on to another investor. The fund is therefore 'open ended' and the amount of money under management can vary according to the confidence which investors have in that particular unit trust's future. The rules for calculating the value of unit trusts are laid down very precisely and apart from expenses, the value of each unit will exactly reflect the value of the underlying securities in which the money was invested. For this reason there is no question of a discount on unit trust prices, as there is in the case of investment trust shares. Unit trusts can be authorised by the authorities for sale to the general public or unauthorised if they are to be used as more private investment vehicles, for example for pension funds.

Unsystematic risk is specific to a single company.  This type of risk could include dramatic events such as fraud, litigation or simply a poor trading performance.  Two common sources of unsystematic risk are business risk and financial risk.  Diversification can mitigate unsystematic risk from a portfolio.  There is no reward for taking on unneeded unsystematic risk; investors are rewarded for taking market risk.

That portion of the tax relief available for member contributions to a personal pension scheme in any tax year which is in excess of that claimed by reference to the contributions already made.

An investor whose way of investing is to buy shares when they are considered to be under priced and to take profits when they appear overvalued.

Venture capital is a phrase used to describe capital which is available for investment in start-up situations or developing companies. Since at that stage in a company's development, the risks of failure are very considerable (much greater, in normal circumstances, than the risks involved in buying into an established company), the investment is something of a 'venture'.

Traditionally the difference between the yield on 2.5% Consols, an old established, undated, gilt-edged stock and the average yield on shares. More recently, the average yield on long-dated gilts has been used instead of that on Consols. Before 1960, gilt yields were less than the average equity yield but since then, the position has been reversed, gilts now yielding more than equities.

Also know as zero coupon bonds, pay no income, but offer a predetermined capital sum when the bond matures.