FAQs
As you get to explore the world of investing you will come across a variety of investing terminology and references. Some of these are easily understood, while others need some explanation.
By clicking the links below you will get straightforward explanations of some of the most common terms and references:
What is an Absolute Return Strategy?
What are Unit Linked Funds?
These are investment vehicles in which the monies of numerous investors are pooled together and the entire pool used to purchase assets such as equities, bonds, property or cash. The asset choice depends on the particular fund. Each investor's share in this pool is represented by a certain number of units. Unit prices are struck for the fund and reflect the value of the underlying assets at that time. The value of each investor’s holding at a given point in time is determined by the number of units they hold, multiplied by the prevailing unit prices.
What are Equities?
These are company shares that represent a part-ownership by the investor of a particular company. Ownership of equities/shares will often entitle the investor to a portion of the company’s profits. These are paid to shareholders at intervals and are called dividends. Equities offer considerable potential for capital growth, but because their value can fall as well as rise, there is also the risk of capital loss. This is why equities are risk investments and are best suited to investors prepared to tolerate such risk and invest their funds for the long term.
What is a Dividend?
This is a payment made to shareholders (equity holders) at intervals, often half-yearly. These payments represent a distribution of part of the company’s profits for a given period. The Equity funds do not pay out the dividends, instead they are reinvested.
What are Gilts/Bonds?
Gilts (often called Bonds) are issued by governments, effectively as a means of borrowing capital from investors. Investors in gilts are entitled to a fixed income (usually paid half-yearly) up to the maturity date of the gilt, and are guaranteed to be repaid their original capital at maturity. For example, an investment in 4.6% Treasury Bond 18/4/2016 (an Irish government gilt) entitles the investor to interest of 4.6% p.a. between now and April 2016, when the gilt matures and the capital is repaid.
What are Corporate Bonds?
Corporate bonds are bonds issued by large corporations, rather than those issued by governments. As the availability of government bonds diminishes, the popularity of corporate bonds is rising. In investment circles, the term ‘credit’ is sometimes used when referring to corporate bonds.
What are High Yield Funds?
A High Yield Equity Fund invests in a portfolio of shares which pay an above-average dividend relative to the wider market of shares. Dividends are payments made by a company to its shareholders out of profits that the company has made. The dividends paid by each stock to the fund are re-invested to purchase further high dividend-yielding stocks.
What is a Currency Fund?
A Currency Fund invests purely in different currencies and benefits from the fluctuations in short and medium foreign exchange movements. Currencies are recognised as a separate asset class as they are not dependant on favourable stock market environments or favourable interest rates.
What is an Absolute Return Strategy?
An Absolute Return Strategy uses investment techniques with the potential to make money in both rising and falling markets. This type of fund uses both long and short investment positions. The aim is to earn profits regardless of the general direction in which the markets are moving.
How does a Cash Fund work?
A Cash Fund invests in short term deposits which provide a secure income. It is used most often when investors are unsure of their fund choice and are looking for security in times of market uncertainty.
What is Inflation?
This is the rate at which the Consumer Price Index is rising. It is a good guide to the increase in the cost of living and a way of measuring the purchasing power of your money. So, for instance, if the return from a deposit interest account is lower than the prevailing inflation rate, then your money in that account is actually worth less in real terms.
What is Bid/Offer Spread?
This describes the units in a unit-linked fund that have two prices. Firstly, the offer price at which the policyholder purchases units from the fund. Secondly, the bid price at which the investment company purchases units from the policyholder. The bid price is usually 95% of the offer price, which means that the 5% bid/offer spread represents the margin taken by the investment company to recoup their expenses.
