Friday, June 13

Mutual Fund Glossary

A
Accrued interest Interest that has been earned but not received.
Accumulation plan An arrangement which enables an investor to purchase mutual fund shares regularly in large or small amounts.
Annual Report A financial report sent yearly to a publicly held firm's shareholders. This report must be audited by independent auditors.
Annuitant An individual who purchases an annuity and will receive payments from that annuity.
Annuity A contract that guarantees a series of payments in exchange for a lump sum investment.
Ask price A proposal to sell a specific quantity of securities at a named price.
Assets What a firm or individual owns.

B
Back-end load A sales charge levied when mutual fund units are redeemed.
Balance sheet A financial statement showing the nature and amount of a company's assets, liabilities and shareholders' equity.
Balanced fund A mutual fund which has an investment policy of "balancing" its portfolio generally by including bonds and shares in varying proportions influenced by the fund's investment outlook.
Bank Rate The rate at which the Bank of Canada makes short-term loans to chartered banks and other financial institutions, and the benchmark for prime rates set by financial institutions.
Bankers' Acceptance Short-term bank paper with the repayment of principal and payment of interest guaranteed by the issuer's bank.
Bear market A declining financial market.
Beta A statistical term used to illustrate the relationship of the price of an individual security or mutual fund unit to similar securities or financial market indexes.
Bid price A proposal to buy a specific quantity of securities at a named price.
Blue chip A descriptive term usually applied to high grade equity securities.
Board lot A standard number of shares for trading transactions. The number of shares in a board lot varies with the price level of the security, although in most cases a board lot is 100 shares.
Board of directors A committee elected by the shareholders of a company, empowered to act on their behalf in the management of company affairs. Directors are normally elected each year at the annual meeting.
Bond A long-term debt instrument with the promise to pay a specified amount of interest and to return the principal amount on a specified maturity date.
Bond fund A mutual fund whose portfolio consists primarily of bonds.
Book value The value of net assets that belong to a company's shareholders, as stated on the balance sheet.
Broker An agent who handles the public's orders to buy and sell securities, commodities, or other property. A commission is generally charged for this service.
Bull market An advancing financial market.
Buying on margin Purchasing a security partly with borrowed money.

C
Callable Preferred shares or bonds that give the issuing corporation an option to repurchase, or "call" those securities at a stated price. These are also known as redeemable securities.
Canada Savings Bond A bond issued each year by the federal government. These bonds can be cashed in at any time for their full face value.
Capital Generally, the money or property used in a business. The term is also used to apply to cash in reserve, savings, or other property of value.
Capital cost allowance A taxation term, equivalent to depreciation, that makes allowance for the wearing away of a fixed asset.
Capital loss The loss that results when a capital asset is sold for less than its purchase price.
Capital stock All ownership shares of a company, both common and preferred.
Capitalization The total amount of all securities, including long-term debt, common and preferred stock, issued by a company.
Cash equivalent Assets that can be quickly converted to cash. These include receivables, Treasury bills, short-term commercial paper and short-term municipal and corporate bonds and notes.
Cash surrender value The amount of cash a person may obtain by voluntarily surrendering a life insurance policy.
Certificate A document providing evidence of ownership of a security such as a stock or bond.
Closed-end fund A fund company that issues a fixed number of shares. Its shares are not redeemable, but are bought and sold on stock exchanges or the over-the-counter market.
Commercial paper A negotiable corporate promissory note with a term of a few days to a year. It is generally not secured by company assets.
Common stock A security representing ownership of a corporation's assets. Voting rights are normally accorded to holders of common stock.
Compounding The process by which income is earned on income that has previously been earned. The end value of the investment includes both the original amount invested and the reinvested income.
Consumer price index A statistical device that measures the change in the cost of living for consumers. It is used to illustrate the extent that prices have risen or the amount of inflation that has taken place.
Contractual plan An arrangement whereby an investor contracts to purchase a given amount of a security by a certain date and agrees to make partial payments at specified intervals.
Convertible A security that can be exchanged for another. Bonds or preferred shares are often convertible into common shares of the same company.
Corporation A legal business entity created under federal or provincial statutes. Because the corporation is a separate entity from its owners, shareholders have no legal liability for its debts.
Coupon rate The annual interest rate of a bond.
Current asset An asset that could be converted into cash within 12 months.
Current liability A liability that has to be paid within 12 months.
Current yield The annual rate of return that an investor purchasing a security at its market price would realize. This is the annual income from a security divided by the current price of the security. It is also known as the return on investment.
Custodian A financial institution, usually a bank or trust company, that holds a mutual fund's securities and cash in safekeeping.

D
Debenture A bond unsecured by any pledge of property. It is supported by the general credit of the issuing corporation.
Debt An obligation to repay a sum of principal, plus interest. In corporate terms, debt often refers to bonds or similar securities.
Deferral A form of tax sheltering that results from an investment that offers deductions during the investor's high-income years, and/or postpones capital gains or other income until after retirement or during another period when the income level is expected to change.
Deferred Profit Sharing PlanA plan that allows an employer to set aside a portion of company profits from the benefit of employees. A corporation makes a contribution to the plan on behalf of an employee.
Defined benefit pension plan A registered pension plan that guarantees a specific income at retirement, based on earnings and the number of years worked.
Defined contribution pension plan a registered pension plan that does not promise an employee a specified benefit upon retirement. Benefits depend on the performance of investments made with contributions to the plan.
Denomination The principal amount, or value at maturity, or a debt obligation. Also known as the par value or face value.
Depreciation Charges made against earnings to write off the cost of a fixed asset over its estimated useful life. Depreciation does not represent a cash outlay. It is a bookkeeping entry representing the decline in value of an asset that is wearing out.
Discount The amount by which a bond sells on the secondary market at less than its par value or face value.
Distributions Payments to investors by a mutual fund from income or from profit realized from sales of securities.
Diversification The investment in a number of different securities. This reduces the risks inherent in investing. Diversification may be among types of securities, companies, industries or geographic locations.
Dividend A per-share payment designated by a company's board of directors to be distributed among shareholders. For preferred shares, it is generally a fixed amount. For common shares, the dividend varies with the fortunes of the company and the amount of cash on hand. It may be omitted if business is poor or the directors withhold earnings to invest in plant and equipment.
Dividend fund A mutual fund that invests in common shares of senior Canadian corporations with a history of regular dividend payments at above average rates, as well as preferred shares.
Dividend tax credit An income tax credit available to investors who earn dividend income through investments in the shares of Canadian Corporations.
Dollar cost averaging A principle of investing which entails the use of equal amounts for investment at regular intervals in the hope of reducing average share cost by acquiring more shares in periods of lower securities prices and fewer shares in periods of higher securities prices.

E
Earned income For tax purposes, earned income is generally the money made by an individual from employment. It also includes some taxable benefits. Earned income is used as the basis for calculating RRSP maximum contribution limits.
Earnings statement A financial statement showing the income and expenses of a business over a period of time. Also known as an income statement or profit and loss statement.
Equity The net worth of a company. This represents the ownership interest of the shareholders (common and preferred) of a company. For this reason, shares are often known as equities.
Equity fund A mutual fund whose portfolio consists primarily of common stocks.

F
Face value The principal amount, or value at maturity, of a debt obligation. Also known as the par value or denomination.
Fair market value The price a willing buyer would pay a willing seller if neither was under any compulsion to buy or sell. The standard at which property is valued for a deemed disposition.
Fiduciary An individual or institution occupying a position of trust. An executor, administrator or trustee. Hence, "fiduciary" duties.
Fiscal policy The policy pursued by government to manage the economy through its spending and taxation powers.
Fixed assets Assets of a long-term nature, such as land and buildings.
Fixed dollar withdrawal plan A plan that provides the mutual fund investor with fixed-dollar payments at specified intervals, usually monthly or quarterly.
Fixed liability Any corporate liability that will not mature within the following fiscal period. For example, long-term mortgages or outstanding bonds.
Fixed income investments Investments that generate a fixed amount of income that does not vary over the life of the investment.
Fixed-period withdrawal plan A plan through which the mutual fund investor's holdings are fully depleted through regular withdrawals over a set period of time. A specific amount of capital, together with accrued income, is systematically exhausted.
Front-end load A sales charge levied on the purchase of mutual fund units.
Fundamental analysis A method of evaluating the future prospects of a company by analyzing its financial statements. It may also involve interviewing the management of the company.

G
Growth stocks Shares of companies whose earnings are expected to increase at an above-average rate. Growth stocks are often typified by their low yields and relatively high price/earnings rations. Their prices reflect investors' belief in their future earnings in growth.
Guaranteed investment certificatesA deposit instrument paying a predetermined rate of interest for a specified term, available from banks, trust companies and other financial institutions.

H
I
Income funds Mutual funds that invest primarily in fixed-income securities such as bonds, mortgages and preferred shares. Their primary objective is to produce income for investors, while preserving capital.
Index fund A mutual fund that matches its portfolio to that of a specific financial market index, with the objective of duplicating the general performance of the market in which it invests.
Inflation A condition of increasing prices. In Canada, inflation is generally measured by the Consumer Price Index.
Interest Payments made by a borrower to a lender for the use of the lender's money. A corporation pays interest on bonds to its bondholders.
International fund A mutual fund that invests in securities of a number of countries.
Intrinsic value The amount by which the price of a warrant or call option exceeds the price at which the warrant or option may be exercised.
Investment adviser Investment counsel to a mutual fund. Also may be the manager of a mutual fund.
Investment company A corporation or trust whose primary purpose is to invest the funds of its shareholders.
Investment counsel A firm or individual which furnishes investment advice for a fee.
Investment dealer A securities firm.
Investment fund A term generally interchangeable with "mutual fund."
Issued shares The number of securities of a company outstanding. This may be equal to or less than the number of shares a company is authorized to issue.

J
K
L
Letter of intent An agreement whereby an investor agrees to make a series of purchases of mutual fund units.
Leverage The financial advantage of an investment that controls property of greater value than the cash invested. Leverage is usually achieved through the use of borrowed money.
Liabilities All debts or amounts owing by a company in the form of accounts payable, loans, mortgages and long-term debts.
Life annuity An annuity under which payments are guaranteed for the life of the annuitant.
Life expectancy adjusted withdrawal planA plan through which a mutual fund investor's holdings are fully depleted while providing maximum periodic income over the investor's lifetime.
Liquidity Refers to the ease with which an investment may be converted to cash at a reasonable price.
Load Commissions charged to holders of mutual fund units. (See sales charge.)
Long-term asset A mutual fund that charges a commission to purchase its shares.
Long-term debt Debt that becomes due after more than one year.

M
Management company The entity within a mutual fund complex responsible for the investment of the fund's portfolio and/or the administration of the fund. It is compensated on a percentage of the fund's total assets.
Management expense ratio A measure of the total costs of operating a fund as a percentage of average total assets.
Management fee The sum paid to the investment company's adviser or manager for supervising its portfolio and administering its operations.
Margin An investor's equity in the securities in his or her account. The margin purchaser puts up a portion of the value of the securities, borrowing the remainder from the investment dealer.
Marginal tax rate The rate of tax on the last dollar of taxable income.
Market index A vehicle used to denote trends in securities markets.
Market price In the case of a security, market price is usually considered the last reported price at which the stock or bond is sold.
Maturity The date at which a loan or bond or debenture comes due and must be redeemed or paid off.
Money market A sector of the capital market where short term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold.
Money market fund A type of mutual fund that invests primarily in treasury bills and other low-risk, short-term investments.
Money purchase pension plan Another term for defined contribution pension plan.
Mortgage fund A mutual fund that invests in mortgages. Portfolios of mortgage funds usually consist of first mortgages on Canadian residential property, although some funds alsoinvest in commercial mortgages.
Mortgage-backed securities Certificates that represent ownership in a pool of mortgages. The holders of these securities receive regular payments of principal and interest.
Mutual fund An investment entity that pools shareholder or unitholder funds and invests in various securities. The units or shares are redeemable by the fund on demand by the investor. The value of the underlying assets of the fund influences the current price of units.

N
Net asset value The value of all the holdings of a mutual fund, less the fund's liabilities.
Net asset value per share Net asset value of a mutual fund divided by the number of shares or units outstanding. This represents the base value of a share of unit of a fund and is commonly abbreviated to NAVPS.
No-load fund A mutual fund that does not charge a fee for buying or selling its shares.

O
Odd lot Any number of securities that represents less than a board lot.
Open-end fund An open-end mutual fund continuously issues and redeems units, so the number of units outstanding varies from day to day. Most mutual funds are open-ended.
Option The right or obligation to buy or sell a specific quantity of a security at a specific price within a stipulated period of time.
Over-the-counter market A securities market that exists for securities not listed on stock exchanges. Bonds, money market securities and many stocks are traded on the over-the-counter market.

P
Par value The principal amount, or value at maturity, of a debt obligation. It is also known as the denomination or face value. Preferred shares may also have par value, which indicates the value of assets each share would be entitled to if a company were liquidated.
Pension adjustment An amount that reduces the allowable contribution limit to an RRSP based on the benefits earned from the employee's pension plan or deferred profit sharing plan.
Pension plan A formal arrangement through which the employer, and in most cases the employee, contribute to a fund to provide the employee with a lifetime income after retirement.
Permanent life insurance Life insurance coverage for which the policyholder pays an annual premium, generally for the life of the insured. This type of policy features a savings component, known as the cash surrender value.
Portfolio All the securities which an investment company or an individual investor owns.
Preferred share An ownership security, senior to the common stock of a corporation, with preferred claim on assets in case of liquidation and a specified annual dividend.
Premium The amount by which a bond's selling price exceeds its face value. Also, the amounts paid to keep an insurance policy in force.
Present value The current worth of an amount to be received in the future. In the case of an annuity, present value is the current worth of a series of equal payments to be made in the future.
Price earnings ratio The market price of a common share divided by its earnings per share for 12 months.
Primary distribution A new security issue, or one that is made available to investors for the first time.
Principal The person for whom a broker executes an order, or a dealer buying or selling for his or her own account. Also, an individual's capital or the face amount of a bond.
Prospectus The document by which a corporation or other legal entity offers a new issue of securities to the public.

Q
R
Ratio withdrawal plan A type of mutual fund withdrawal plan that provides investors with an income based on a percentage of the value of units held.
Real estate fund A mutual fund that invests primarily in residential and/or commercial real estate to produce income and capital gains for its unitholders.
Real estate investment trust A closed-end investment company that specializes in real estate or mortgage investments.
Redeemable Preferred shares or bonds that giver the issuing corporation an option to repurchase securities at a stated price. These are also known as callable securities.
Registered Education Savings Plan (RESP) A plan that enables a contributor, on a tax deferral basis, to accumulate assets on behalf of a beneficiary to pay for a post secondary education.
Registered Retirement Income Fund (RRIF) A maturity option available for RRSP assets to provide a stream of income at retirement.
Registered Retirement Savings Plan (RRSP) A retirement savings plan to hold amounts deducted from taxable income, within certain limits, in a tax deferred state. There are various investment options and a tax deferral on investment income and gains. Available to individuals to and including 69 years of age, but must be collapsed by the end of the year in which the holder turns 69 years of age.
Retained earnings The accumulated profits of a company. These may or may not be reinvested in the business.
Retractable Bonds or preferred shares that allow the holder to require the issuer to redeem the security before the maturity date.
Rights Options granted to shareholders to purchase additional shares directly from the company concerned. Rights are issued to shareholders in proportion to the securities they may hold in a company.
Risk The possibility of loss; the uncertainty of future returns.

S
Sales charge In the case of mutual funds, these are commissions charged to holder of fund units, usually based on the purchase or redemption price. Sales charges are also known as "loads."
Securities Act Provincial legislation regulating the underwriting, distribution and sale of securities.
Shares A document signifying part ownership in a company. The terms "share" and "stock" are often used interchangeably.
Shareholders' equity The amount of a corporation's assets belonging to its shareholders (both common and preferred) after allowance for any prior claim.
Short selling The sale of a security made by an investor who does not own the security. The short sale is made in expectation of a decline in the price of a security, which would allow the investor to then purchase the shares at a lower price in order to deliver the securities earlier sold short.
Simplified prospectus An abbreviated and simplified prospectus distributed by mutual funds to purchasers and potential purchasers of units or shares (see prospectus).
Specialty fund A mutual fund that concentrates its investments on a specific industrial or economic sector or a defined geographical area.
Spread The difference between the rates at which money is deposited in a financial institution and the higher rates at which the money is lent out. Also, the difference between the bid and ask price for a security.
Stock options Rights to purchase a corporation's stock at a specified price.
Strip bonds The capital portion of a bond from which the coupons have been stripped. The holder of the strip bond is entitled to its par value at maturity, but not the annual interest payments.
Systematic withdrawal plan Plans offered by mutual fund companies that allow unitholders to receive payment from their investment at regular intervals.

T
Tax credit An income tax credit that directly reduces theamount of income tax paid by offsetting other income tax liabilities.
Tax deduction A reduction of total income before the amount of income tax payable is calculated.
Technical analysis A method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns.
Term insurance Temporary life insurance that covers the policyholder for a specific time.
Term to 90 annuity An annuity that pays a fixed amount each year until it is exhausted in the year that the annuitant turns 90.
Trade A securities transaction.
Treasury bill (T-bill) Short-term government debt. Treasury bills bear no interest, but are sold at a discount. The difference between the discount price and par value is the return to be received by the investor.
Trust An instrument placing ownership of property in the name of one person, called a trustee, to be held by the trustee for the use and benefit of some other person.

U
Underwriter An investment firm that purchases a security directly from its issuer for resale to other investment firms or the public or sells for such issuer to the public.
Unit trust An unincorporated fund whose organizational structure permits the conduit treatment of income realized by the fund.
Universal life insurance A life insurance term policy that is renewed each year and which has both an insurance component and an investment component. The investment component invests excess premiums and generates returns to the policyholder.

V
Variable life annuity An annuity providing a fluctuating level of payments, depending on the performance of its underlying investments.
Vesting In pension terms, the right of an employee to all or part of the employer's contributions, whether in the form of cash or as a deferred pension.
Voluntary accumulation plan A plan offered by mutual fund companies whereby an investor agrees to invest a predetermined amount on a regular basis.

W
Warrant Certificates allowing the holder the opportunity to buy shares in a company at a stated price over a specified period. Warrants are usually issued in conjunction with a new issue of bonds, preferred shares or common shares.
Wrap account An account offered by investment dealers whereby investors are charged an annual management fee based on the value of invested assets.

X
Y
Yield Annual rate of return received on investments, usually expressed as a percentage of the market price of the security.
Yield curve A graphic representation of the relationship among yields of similar bonds of differing maturities.
Yield to maturity The annual rate of return an investor would receive if a bond were held until maturity.

Z
Zero coupon bond A bond that pays no interest and is initially sold at a discount.

Source: www.globefund.com/centre/Glossary_IFIC

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