Glossary
Account-based pension (or annuity)
is flexible retirement income stream with unlimited access to capital and flexible income payments (subject to Government prescribed minimum payment limits) but with no guarantee on how long the investment will last. The value of the account depends on investment earnings and the amount of payments made.
Accumulation fund
a superannuation fund where your account balance is calculated as your deposits to the fund (i.e., contributions and rollovers) plus your investment earnings less any fees, taxes and insurance premiums you pay.
All Ordinaries Accumulation Index
a measurement of the average movements in share price of a selection of major Australian companies listed on the Australian Stock Exchange. It is an accumulation index, which means that it assumes that dividends have been reinvested.
Annuity
a regular income stream paid to an individual from a lump sum investment, usually for the purposes of retirement income.
Approved Deposit Fund (ADF)
a concessionally taxed investment fund for superannuation monies. Similar to a superannuation fund, however an ADF can only accept rollovers and cannot accept contributions. For this reason superannuation funds have become more popular.
Appreciation
the increase in the value of an asset.
Assets
the Australian Securities & Investments Commission's (ASIC) consumer website, defines assets as 'The resources owned by a company, fund or person. Assets can be tangible, such as cash, investments, property and equipment, or intangible, for example goodwill, patents.'
Asset allocation
a representation of how a portfolio is invested among the various available asset classes. For example, a balanced fund may have an asset allocation of 30% Australian shares, 25% international shares, 10% property, 20% fixed interest, 10% international fixed interest, and 5% cash.
Asset classes
types of investments, such as shares, fixed interest securities, property, cash and international investments.
Balanced fund
sometimes called a diversified fund, a type of managed fund whose investment strategy is to have some proportion of its investments in all major asset classes, and to create a risk/return balance between different types of investments.
Bear market
a market that is decreasing over time. The opposite to a bull market.
Benefit
in relation to superannuation, the amount of money you are entitled to receive from your superannuation fund as a lump sum or income stream.
Blue chip shares
shares in well-established companies that have historically shown ability to pay dividends in uncertain markets.
Bonds
see fixed interest securities
Broker
an agent who executes an investor's orders to buy or sell securities.
Brokerage
a fee charged by a financial adviser or stockbroker for a transaction. Sometimes also referred to as commission.
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 investment is sold or disposed of in some other way.
Cash
one of the asset classes. Examples include coin and note currency in circulation and in deposit accounts and money market securities.
Cash Management Trust (CMT)
a managed investment in which the primary investments are cash (as defined above). While offering security, they can also offer a competitive rate of interest.
Commission
see Brokerage.
Compound interest
interest calculated on the principal and interest already accrued.
Concessional Contributions
contributions to superannuation, which are generally made from before-tax money, such as employer contributions including salary sacrifice, and personal contributions for which a personal tax deduction is claimed.
Constitution
also known as a trust deed, it is a document that governs the operation of a managed investment and setting out, amongst other things, investment, application and withdrawal procedures.
Consumer Price Index (CPI)
an index measuring the prices of items of goods and services. Allows comparison of the relative cost of living over time, typically know as inflation.
Contributions
Money deposited into your superannuation fund by you or on your behalf (excluding rollovers which are not considered to be contributions).
Contribution fee
is the fee for the initial and every subsequent investment you make into a fund.
Contributions Tax
Income tax charged on assessable income of superannuation fund. This tax (currently 15%) is applied to assessable contributions, including employer, salary sacrifice and personal deductible contributions and investment earnings.
Currency gains
a security's capital gain due to movements in the currency in which the security was denominated.
Deductible expenses
expenses that can be offset against income assessable for tax. Some contributions to superannuation funds may be deductible to individuals.
Defined Benefit Fund
a superannuation fund, which 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 is not linked to contributions made over the period of employment. The opposite to a defined contribution or accumulation fund.
Defined contribution fund
see accumulation fund.
Derivatives
are investment products whose value is based on, or derived from, some other item such as the price of some other asset or a market index.
Distributions
income payments from managed investments. Such payments comprise a share of any net income and realised capital gains earned over a financial year. The components that generally make up a distribution are profits from the sale of assets, income and currency gains.
Diversification
spreading an investment over a range of asset classes, sectors and regions with the aim of reducing risk.
Dividend
payment to shareholders from a company's after-tax earnings.
Dividend imputation
tax already paid by a company is credited to individual shareholders when a dividend is paid.
Dollar cost averaging
is investing a set amount of money, at regular intervals, over a period of time. This means an investor could gain an advantage from rises and falls in the investment price, buying more when the price is low and less when the price is high, and so reducing the risk of loss.
Equity
(1) a share investment or (2) the part of an asset owned by an individual over and above any debt against the asset.
Entry price
the price per unit or share of an investment in which applications are made.
Exit price
the price at which an investor can withdraw their units from a fund or trust.
Financial adviser
(or financial planner) an individual who is licensed to provide investment advice to others for a fee. Find out more about Financial Advisers.
Fixed Interest securities
include bonds and represent loans to borrowers, which could include governments, banks and companies. In return for the loan, the borrower generally pays a pre-determined rate of interest for an agreed term.
Franked dividends
dividends on shares that include an imputation credit.
Fund
see managed investment.
Futures
a derivative investment in which parties agree on an obligation to buy or sell a specified quantity of an underlying asset at some time in the future, and the price.
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.
Growth assets
a term given to assets such as shares and property that are expected to provide strong investment returns over the long term.
Growth fund
a managed investment that is predominantly invested in growth assets.
Hedge fund
a managed investment where the fund manager is authorised to use derivatives and borrowing with the aim of providing a higher return.
Hedging
undertaking one investment to protect against the potential loss in another investment. Options and futures are often used to hedge an investment.
Immediate annuity
a regular income stream purchased with a lump sum investment, where the income stream starts immediately after the purchase. They are usually provided by a life insurance company for the purposes of retirement income.
Imputation credit
taxation credits that are passed on to shareholders who have received franked dividends from holding shares or managed share investments.
Income
regular payments from an investment derived from interest on cash or bonds, dividends on shares, rent from properties or income.
Indirect Cost Ratio
an industry-standard measure expressing the management fees and certain other expenses of a managed fund as a proportion of the net asset value of the fund. See also Management Expense Ratio.
Inflation
see Consumer Price Index.
Interest
the return earned on money that has been invested or loaned, the price paid for its use.
Investment
an asset purchased with the intention of producing capital growth or income, or both, for the owner.
Investment mix
the mix of assets your money is invested in to achieve your financial objectives. The mix is based on the time you have to achieve your objective and your risk tolerance.
Investor profile
also known as risk profile. An individual's or an investment manager's willingness to trade off the risk of losing money in exchange for higher returns over time.
Investment risk
the variability of returns. Generally, the higher the potential return over time, the higher the level of risk involved.
Investment strategy
an investment strategy is the combination of assets you invest in to achieve your goals within the timeframe you specify. The appropriate strategy will depend on your goal, the length of time you have to achieve the goals and your tolerance for risk (that you might lose money as well as grow your money). A professional adviser can analyse these considerations and recommend the right strategy for you.
Lifetime pension (or annuity)
a retirement income stream where regular payments are guaranteed to be paid for a person's lifetime and in some cases their spouse's lifetime as well. There is no access to capital and generally little or no income flexibility.
Liquidate
to sell an investment or to convert an investment into cash.
Listed security
a security that 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.
Lump sum
a superannuation benefit taken in cash rather than being rolled over to another super fund or a pension or annuity.
Lump sum tax
tax payable on a lump sum benefit payment from a superannuation fund.
Managed fund
see managed investment.
Managed investment
an investment product where investors pool their money with that of other investors in a fund so that the fund can buy a wide range of investments. A professional fund manager makes the investment decisions and manages the investments. Also known as a managed fund, managed investment scheme or unit trust.
Management expense ratio (MER)
a ratio expressing the management, fees 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, often to make use of negative gearing.
Maximum contribution base
this is the maximum limit on an employee's earnings base for each quarter of a financial year above which their employer is not required to provide superannuation guarantee.
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 one year or less.
Negative gearing
purchasing an investment with borrowed funds where the interest on the borrowing exceeds the income from the investment.
Net asset value
the value of a company, or managed investment, which is the assets less liabilities.
Non-concessional contributions
contributions to superannuation that are generally made from after-tax money, such as personal contributions for which a tax deduction has not been claimed, and spouse contributions.
Options
a derivative investment giving the holder an option to buy or sell a specified quantity of an underlying asset at some time in the future, at a price which is agreed when the contract is executed.
Other Management Costs
an individual measure of indirect costs (see ICR) of managing and administering an investment account. Expressed as a dollar value.
Pension
a regular income stream paid to an individual, either by the government (such as an Age Pension) or from a superannuation fund (e.g. account-based pension).
Percentage Factor
the age based percentage used to determine the minimum annual payment a member of an account-based pension is required to receive from the pension under superannuation law.
Portfolio
the full range of an investor's, or managed fund's, investment holdings.
Preservation
a requirement to retain superannuation benefits within the superannuation environment until a specified condition has been met. Under current laws most benefits are compulsorily preserved until a person satisfies a condition of release such as retirement (between 55 and 60) or reaching age 65.
Product Disclosure Statement (PDS)
an offer document that sets out information on a product, including the features of the product, fees that apply, the benefits and risks of investing in the product, commissions that may affect returns, information about complaints handling and cooling-off rights, and other information that might reasonably be expected to have a material influence on an investor's decision to invest.
Profit
occurs when an investment appreciates in value and is sold, or realised. Also known as a realised gain.
Property securities
in a managed investment the term "property" generally refers to investments in property securities - which are units or interests in property trusts listed on the stock exchange. Funds that invest in property securities usually diversify 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.
Realise
to sell an investment.
Realised capital gain
when an investment is sold and a capital gain is realised.
Real rate of return
the rate of return on an investment in excess of inflation. For example, if the rate of return is 10% but the inflation rate is 3%, the real return is 7%.
Redemption/redeem
to withdraw, or sell, an investment.
Reinvest
where income from an investment is used to make an additional investment, generally at no fee, increasing the potential to receive higher capital growth and distributions in the future.
Responsible Entity
the entity that operates a managed investment under the constitution.
Return
the amount of earnings from an investment in a given timeframe — usually expressed as a percentage per year.
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. Learn more about risk.
Rollover/rolling over
the transfer of superannuation benefit 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 super or allocate to a fringe benefit instead of taking it as cash salary.
Sector
a group of securities with common characteristics, such as resource sector companies or financial companies.
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 ownership in part of a company. When you buy a share in a company you become a part of the business and share in the future of that business. Also known as an equity.
Spouse contribution
a contribution made to superannuation on behalf of a spouse. The receiving spouse must be under age 70. The contributing spouse may be entitled to a tax offset.
Stockbroker
a person who buys and sells securities on behalf of others in return for brokerage or commission.
Superannuation
a tax effective means of putting aside money during your working life for use in retirement.
Superannuation benefit
used to describe money that is already in the superannuation environment. A payment from a superannuation fund, approved deposit fund or employer to a person upon resignation, retrenchment, disablement, death or retirement. Sometimes such payments can be taken in cash, at other times they must be rolled over.
Super co-contribution
an amount contributed to an eligible person's super fund by the Government under the superannuation co-contributions scheme.
Superannuation fund
a concessionally taxed trust run by a trustee or trustee board with the primary purpose of holding superannuation assets for the beneficiaries of the fund (i.e. members and their dependants).
Super choice
ability to choose the super fund to which your employer directs your super contributions.
Superannuation Guarantee (SG)
a compulsory minimum level of superannuation an employer must contribute for all eligible employees. This is currently 9% of an employee's Ordinary Time Earnings (OTE) up to the maximum contribution base ($43,820 per quarter for 20011/12).
Switching
transferring units between managed investments by selling the units of one managed investment and using the proceeds to buy units in the other. This may trigger a capital gain.
Synthetics
see derivatives.
Tax rebate/offset
now known as tax offsets - an entitlement that reduces the amount of income tax payable.
Trust deed
for a managed investment, see constitution. For a superannuation fund, a trust deed is a legal document that sets out Trust's constitution, objectives, purpose and also includes the rights, duties and responsibilities of the Trustees and the beneficiaries (i.e., member and their dependants).
Unit price
the price for each unit of a managed investment. This is calculated by dividing the value of the assets of the managed investment by the number of units on issue to investors.
Units
a share of a managed investment, which represents an entitlement to the asset within the fund.
Unit trust
see managed investment.
Unrealised capital gain
occurs when an investment increases in value but is not sold or realised.
Vesting
relates to superannuation - super benefits are vested when a member becomes fully entitled to the benefits. Effective from 12 May 2004, as a result of changes in the 2003/04 budget, all members benefits in an accumulation super fund become the members minimum benefits unless certain conditions were met.
Work test
to allow you to add more to your super once you have turned 65, you need to have been gainfully employed for at least 40 hours in a period of no more than 30 consecutive days in the financial year in which you wish to contribute.
Wrap
an investment vehicle that combines or 'wraps' investments into a single account. It is a single account that can manage an entire investment portfolio, buy shares, and managed funds at wholesale prices.
Yield
the dividend, or interest rate, on an investment expressed as a percentage of the price.
