Learn How To Invest

Bond (Fixed Interest Investments) : legally binding agreement given to you in exchange for a sum of money that a government, company, council, municipality, church, etc., agrees to repay to you at a specified maturity date with an agreed amount of interest.

Deposit Account : this is usually a cash-based investment with a licensed deposit taker, or bank, where you are paid interest on a specified basis, usually annually. The rate of interest may be fixed or variable, and you may be required to give a period of notice, or suffer a loss of interest if the capital is required earlier than the notice period. Most clients will have an instant access account that they usually use for holding their savings.

Fund of Funds and Manager of Managers: Increasingly, investment managers make use of an approach that attains diversification by spreading a fund across several investment managers.

There are several ways of doing this and one has to be careful about incurring undue costs in the search for diversification and excellence.

However, with careful selection it is possible to make use of fund of funds or manager of manager offerings in order to reduce risk and manage returns.

Gilts : bonds issued by the UK Government. Usually with a fixed coupon or yield and a fixed term to maturity. Index-linked gilts are also issued. Gains from gilts are tax-free.

Insurance Bond or Investment Bond : a single premium, non-qualifying, whole of life insurance policy that usually invests either into unit trusts or the insurance company’s own funds. There is the limited availability of an annual 5% withdrawal of capital that acts as a “tax-free” income to a basic rate taxpayer. These may be held onshore or offshore, with tax free growth available in the offshore version.

ISA’s (Individual Savings Accounts) : these are tax-efficient accounts that allow a mixture of cash, shares, or collective funds such as unit trusts or OEICS to be held. Each individual has an annual allowance of £10,680. This may all be used for a stocks and shares ISA or split with up to £5,340 for cash.

Collective or Mutual Fund : a pool of numerous investors’ money that an investment manager places in a wide range of shares or fixed interest stock. Therefore, the individual investor owns shares of the mutual fund, and the mutual fund owns the underlying securities e.g. unit trusts, investment trusts, OEIC’s.

National Savings : a government backed deposit taker that offers a range of accounts, all secure, some inflation proofed, some tax-free.

OEIC’s (Open Ended Investment Companies) : a new type of mutual fund – limited investment companies.

PEP (Personal Equity Plan) : no longer available for new investments, these are tax-free share- and unit trust-based investments.

Shares : represents an ownership interest in a company. Companies may issue different types (“classes”) of shares that allow different rights in the structure of the firm. fairfunds is not licensed or qualified to comment on the performance or suitability of individual shares. However, many clients will have become share owners as companies or industries have been privatised.

Unit Trust : see mutual funds.

Fund Supermarkets and Wrap Accounts : these are administrative platforms with online access that allow investors to purchase multiple collective funds and manage various tax wrappers (ISAs, Pensions, Insurance Bonds) in one place. These have really only been available in the UK since 1998 but are gaining momentom as a simplified and streamlined way of setting up and managing investments.

Venture Capital Trust :a specific investment into the shares of a company aiming to raise capital for start-up businesses. Due to the high-risk nature of such ventures, there is tax relief provided on the purchase of such investments, and the maximum investment in any tax year is £200,000.