From time to time the world of finance can present complex terminology. Scroll down to read a brief introduction to some of the more common terms.


Montgomery Associates, investment managers Bath, investment management Bath, IFA, near Bath, investment managers chippenham, investment management Chippenham, wealth managers Bath, wealth management Bath, wealth managers chippenham.


Absolute Return: An investment strategy adopted by Fund Managers through the use of derivatives and other more complex investment strategies to pursue profits regardless of whether the market is going up or down.

“Acc” unit: Acc stands for Accumulation units referring to a type of unit that enables the income derived by a fund to be reinvested and reflected in the price (see Inc).

Annual Exemption: A gift of up to £3,000 in any one tax year which is exempt from Inheritance Tax (IHT). Unused gifts may be carried forward for one tax year only. You may also make as many £250 gifts per person as you like in any one tax year as long as you haven’t used another exemption on the same person.

Annual Investment Review: A letter and investment report sent to clients once a year summarising their investment accounts. 

Annuity: A form of investment usually purchased with cash from a pension fund and provides a taxable income for life.

Asset Class: A group of securities with similar financial characteristics which can in turn be compared for the purpose of analysis. Examples are equities (shares), property, bonds (fixed income), cash etc.

Benchmark: A standard, often an investment index, that an investment's performance can be measured against. E.g. the WMA Balanced Index aims to reflect the strategy of a client seeking a moderate or balanced approach between income and capital growth in their portfolio.

Beneficiary: A person entitled to receive funds, assets or other property through a trust, will or policy.

Bid / Offer: The bid price is the price at which a dealer is prepared to buy a security or other asset. The offer price is the price at which the individual or institution is prepared to sell the asset.


Blue Chip: The largest and most established companies in a sector or index. So called after the gambling chip with the highest value.


Bond (fixed income): A debt investment in which an investor loans money to an entity (corporation or government) that borrows the funds for a defined period of time and pays a fixed rate of interest rate back to the investor. See also Fixed Income.


Bond (Investment): An Investment Bond is a single-premium life assurance policy linked to a unit trust for investment.


Business Property Relief: An incentive introduced in 1976 also known as BPR or Business Relief. Permits shares in qualifying companies, usually AIM-listed companies or those not listed on a stock exchange, to be passed on free of IHT. The shares must be held for least two years and owned by the shareholder at date of the death.

Capital: Wealth in the form of money or other assets available for a purpose such as investing.


Capital Gains Tax (CGT): A tax applicable to the profit or gain on the proceeds from the sale of an asset or investment.

Client Login: a secure section of our website where clients' quarterly investment reports are saved. Find out more


Collective Investment: A general term for investments, such as unit trusts, which are managed by professional managers on behalf of investors.

Dashboard: this is your 'home page' on your Client Login showing any unread reports. Select 'Your Files' to view previous reports and documents we have sent to you.

Discretionary Investment Management: the authority to buy and sell investments on behalf of a client in their best interest.


Dividend: Sum of money paid regularly by a company to its shareholders out of its profits or reserves.


Emerging Markets (EM): Countries that have some but not all of the characteristics of developed markets with long term growth prospects but sometimes short term volatility. EMs are often considered to be higher risk.


Equity: The value of the shares issued by a public company. Equity can also refer to the direct ownership of an asset as a portion of its value when compared to ‘debt’ referring to the borrowed portion.

Estate: The sum of a person's assets less liabilities. The size of a deceased person’s Estate forms the basis of calculating whether any inheritance tax is due.

Exposure: Used by fund managers to mean that they have invested in a particular share, geographical region, asset class or industry.

FCA: Financial Conduct Authority. The regulatory body monitoring and overseeing the practices of financial companies.

Fixed Interest/Income: Any type of investment whereby the borrower or issuer is obliged to pay interest at a fixed rate on a fixed schedule.

FTSE: Financial Times Stock Exchange (FTSE). The FTSE 100 refers to an index of the top 100 largest UK companies and their collective performance. The FTSE 100 index also includes revenues generated abroad by these UK companies.

Fund: Usually a collection of individual investments actively or passively managed by a Fund Manager. The term ‘funds’ can also refer to moneys in general.

GIA: General Investment Account. An account or Portfolio in which investments can be held. See also Portfolio.

Gilts: A loan or ‘bond’ issued specifically by the UK Government paying a fixed interest rate (see Fixed Income).

“Inc” unit: Inc stands for Income, referring to a type of unit entitling the income derived by a fund to be distributed to investors.

Index / Indices: Measure of data such as prices of company shares or investment performance. See also Benchmark.

Inflation: Rate at which the price of goods and services rises and the purchasing value of money falls over time.

Inheritance Tax (IHT): A tax which may be payable on the transfer of certain assets, usually on death but also within a Trust.

Interest: A payment made by a bank or building society to the depositor for the use of their deposits. See also Yield.


Investment Trust: A limited company which invests individual shareholders’ funds. Shares are traded in the same way as a public company.

In Specie: A term often used in relation to the transfer of an investment portfolio from one provider ('investment administration service') to another without selling the underlying investments. Literally means "in its actual form". 

ISA: An Individual Savings Account (or ISA) is a type of account or ‘wrapper’ in which anyone over 18 can shelter savings and investments from tax. Within an ISA you pay no capital gains tax and no further tax on income. Everyone has a maximum ISA allowance per tax year. An investor is not required to declare their ISAs on their tax return.


Liquidity: A measure of the ease with which an asset can be accessed as cash.


Over/under-weight: Describes the proportional holding in an asset when compared to an initial investment strategy.


Pension: Regular payment made by a company or the state to those at retirement age (other conditions also apply). See SIPP.


Platform: An administrative service that enables investors to buy, sell and manage investments with other investors to achieve lower trading costs.

Portfolio: A General Investment Account within which an investor may hold individual equities and funds. See ISA and GIA.


P.E.T.: Potentially Exempt Transfer. The gift of an asset which, after seven years, falls out of the donor’s estate for Inheritance Tax purposes. Tax is applied on a sliding scale called Taper Relief which applies on any gifts made in excess of the Nil Rate Band. See also Annual Exemption.


Probate: Authority given by the court to your personal representatives to deal with your estate following death.

Quarterly Investment Report: a pack of detailed investment valuations for clients prepared every three months either by ourselves (KMA) or a third party (eg a Platform), headed by our KMA Investment Management summary page. 

Report: a periodic statement prepared by either ourselves (KMA) or a third party (eg a Platform) showing the investment holdings within your account.


Security / Securities: A certificate attesting the ownership or right to ownership of stocks or bonds. See also Equity and Stocks/Shares.

SIPP: Self-invested Personal Pension. A pension pot which is managed either by yourself or an assigned investment manager.

Stocks / Shares: A share is a certificate conferring rights of ownership in a company. A stock is a general term for shares in a company but more specifically refers to bonds.

Suitability Report: A recommendation for a prospective change to an existing account or new investment, addressing a client’s current financial situation, their objectives and risks involved with the recommendation. Associated fees and any further information required to make a decision is disclosed to the client.


Trust: A legal arrangement whereby a person (or persons known as Trustees) holds property for the good of one or more beneficiaries.

Unit Trust: A collective investment of securities. The combined value is divided into units which vary in price and are traded.


VCT: Venture Capital Trust. A form of publicly traded private equity (private investment) which invests in unlisted companies and benefits from various tax reliefs.


Wrapper: A technical term in finance used to describe an investment product such as an ISA. See also ISA.

Yield: The annual return from a bond, share or fund as a percentage of its price. See also Interest.

Source: KMA Ltd, Investopedia, Financial Times. Financial terms listed on this website are intended only for clients of Montgomery Associates, are to be used as a guide only and do not constitute official definitions. Montgomery Associates have made every effort to check financial definitions but cannot take responsibility for the content of third party websites. V3.2