Investment Terms of Unit Trusts
From Financial Literacy Wiki
Below is a list of terms you need to know before you kickstart your investment journey in Unit Trusts.
| Terms | Meaning |
|---|---|
| Annualized Rate of return | The return achieved over a period of time expressed as an annual compounded interest rate. Used more to measure performance over long periods. |
| Annual charge | The annual fee charged on your investment. This fee is use to cover the costs of managing the fund and other administrative costs. |
| Asset Allocation | The distribution of different parts of a portfolio to different types of investments. |
| Bear Market | When the market environment suffers from a general downward fall in prices. "Bear" because the animal tends to drag down its prey. |
| Benchmark | An index that unit trusts and mutual funds measure themselves against. Those that outperform the index are generally considered to be doing well and vice versa. |
| Bid price | The price at which the fund manager buys your units back from you. Remember, the fund manager HAS to buy your units back if you want to sell them. |
| Blue Chip | An established company with a long record of profitability. Usually has a large market capitalization and is fundamentally sound. |
| Bull market | When the market environment experiences an upward rise in prices. "Bull" because the animal tends to throw its prey upwards. |
| Capital appreciation | The increase in the market value of investment. This is the main objective of most equity-based funds. |
| Compound | Interest or other payments on amounts of interest or other amounts already received. |
| Derivative instrument | A contract instrument whose price is affected by the price of an underlying security. This would include instruments like futures, warrants, options and convertible bonds. |
| Dollar Cost Averaging | A constant investment into a fund at predetermined times such that the investor purchases more units when the price is low and less when it is high. The idea is that the overall cost is lower than if only a lump sum of money was invested at one time. |
| Discount/bonus | A reduction in the initial charge, thereby lowering the purchasing cost of a unit trust. A bonus achieves the same effect by giving you extra units at no extra cost. |
| Emerging Markets | Markets of economies which are at the early stage of development. |
| Equity | The part of a company's capital which is owned by its shareholders, commonly known as 'shares'. Equity funds invest in a broad portfolio of shares. |
| Exposure | How deeply involved is the investor in a particular theme or trend. |
| Fully Invested | This refers to the situation when the fund has all its cash invested in stocks. Most fund managers usually retain some cash balance for redemption purposes. |
| Index | A statistical representation of the price of a basket of securities representing a market, a group of markets or a particular sector of a market. e.g. ST index, Hang Seng Index, KLSE index. Indices are an indication of the general movement of a market. |
| Index Fund | A unit trust which is invested in the exact same stocks (but may be in different proportions) as a particular Index. It usually charges very low fees. Index funds are normally managed by computers. |
| Management Fee | The fee charged by a fund manager for managing the portfolio of the unit trust. Usually expressed as an annual amount, but accrued each time the unit trust is valued. |
| Micropal | The world's largest provider of data on fund performance. It's accurate, up-to-date and thorough. |
| Net Asset Value | This is the total value of all the assets (stocks, bonds, etc) minus all the expenses (management fees, advertising) in your unit trust. |
| Offer Price | The price at which you can buy units in a unit trust. |
| Portfolio | A collection of individual investments. In a unit trust, the group of securities held is a portfolio. For the individual investor, the group of unit trusts held can also be a portfolio. |
| Prospectus | The public document that gives you all the information that you should know about a particular unit trust. It is a binding document that the unit trust purchaser promises that he has read before he signs the application form. |
| Redemption | The selling of unit trusts back to the fund manager |
| Riskless Asset | Usually taken to mean U.S. Treasury bills and bonds. The return on a riskless asset should be the lowest acceptable return on an investment. In Singapore, Singapore Government Securities would be a substitute. |
| Sales Charge | The proportion of your investment which is taken from your money when you invest in a unit trust. In Singapore, this is typically 5% of your investment. Discount and bonuses reduce this figure. |
| Sector | This refers to the particular industry which the unit trusts specializes in. A unit trust's portfolio is usually categorized by sectors, e.g. telecommunications, technology. |
| Spread | The difference between the buying and selling prices of a unit trust. This is usually about 5%. |
| Underlying Market | The market which a unit trust is allowed to invest in. For example, The Singapore Stock Exchange and Kuala Lumpur Stock Exchange would be the underlying markets for a Singapore/Malaysia unit trust respectively. |
| Unit Trust | A large portfolio of securities managed by a fund manager that is spilt into smaller units which can be purchased by individuals. |
| Volatility | A measure of how much the price of an asset fluctuates over short periods. |
References:
- Fundsupermart.com
