Accumulation fund: A fund where the benefit received by the investor is determined by the
contributions that have been invested plus the investment earnings, less any fees, taxes and insurance premiums.
Allocated pension or annuity: A retirement income investment where an individual invests their superannuation money and receives an income payment periodically. The value of the account depends on the investment earnings and the amount of income taken less any fees or taxes. The capital is accessible and the income is set between Government minimums and maximums. Income will continue to be paid for as long as the account balance is greater than zero.
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.
Approved Deposit Fund (ADF): A concessionally taxed investment fund for superannuation monies. Similar to a superannuation fund, however an ADF can only accept ETP’s (eligible termination payments) and cannot allow contributions. For this reason superannuation funds have become more popular.
Asset allocation: A representation of how a portfolio is invested among the various available asset classes eg 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 purchase(Leasing): Assets are technically hired to the user until the last payment of the agreement, at which point the user, referred to as the hirer, becomes the outright owner. Depending on business usage, the interest portion of the regular repayments and depreciation can be claimed as tax deductions. Flexibility of the structure is an attractive feature. No minimum lump sum payment (balloon) at the end of an asset purchase agreement. Maximums are the same as for lease residual amounts and are set down by the ATO.
Balanced fund: A type of managed fund whose investment strategy is to have, at all times, some proportion of its investments in all asset classes, creating a risk/return balance between the types of investments.
Bear market: A market that is decreasing over time. The opposite to a bull market.
Bonds: Also known as fixed interest securities, are agreements that guarantee to repay a fixed amount of money at a pre-determined date in the future (maturity date). Bonds are generally issued by Governments, banks or companies to finance investment projects.
Bull market: A market that is increasing over time. The opposite to a bear market.
Cash: One of the asset classes. Coin and note currency in circulation and in deposit accounts and money market securities.
Cash Management Trust (CMT): A form of managed investment in which the primary investment is cash securities. While offering security, they can also offer the potential for a higher return than an ordinary bank savings account.
Chattel mortgage: A chattel mortgage is a type of leasing facility used to finance business equipment. The asset acts as security for the lender, and upon the final payment, ownership of the item is transferred to the lessee. It is specifically for business purposes and can be used to finance motor vehicles, plant and equipment. Like a standard loan facility, the lessee retains ownership of the asset throughout the term of the loan – the asset is effectively mortgaged to the finance provider until the final payment is made.
Constitution: Formerly known as a Trust Deed. A document setting out the methods of application, investment and withdrawal of funds within a managed investment, unit trust or public offer superannuation fund.
Consumer Price Index (CPI): An index measuring the prices of items of a selection of goods and services. This allows a comparison of the relative cost of living over time, which is known as inflation.
Contributions Tax: Tax applied to certain contributions to a superannuation fund.
Deductible: Expenses that can be offset against assessable income, or some contributions to superannuation funds are tax deductible to individuals.
Defined Benefit Fund: A superannuation fund that 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 level of contributions made over the period of employment. The opposite of a defined benefit fund is a defined contribution or accumulation fund.
Distributions: Income payments from managed investments. Such payments comprise a share of any net income and realised capital gains earned by an investment over a financial year. The components which 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. As the old saying goes “don’t put all your eggs in one basket”.
Dollar Cost Averaging: Investing a set amount of money, at regular intervals, over a long period of time. This means an investor could gain an advantage from rises and falls in the investment price, Over a period of time by buying more when the price is low and less when the price is high.
Eligible Termination Payment (ETP): A payment from a superannuation fund, approved deposit fund or employer to a person.
Finance lease: An agreement whereby the owner rents goods to the user. It must have a residual amount which represents the potential sale price of the goods at the end of the lease. In most cases, Lessees can claim the full amount of the rentals as tax deductions, provided the goods are used predominantly (more than 50%) to earn assessable income. Also see Asset Purchase, Chattel Mortgage, Balloon payment, Novated Lease, Operating Lease.
Fixed Interest securities: See Bonds.
Franked Dividends: Dividends on shares which include an imputation credit.
Fund: See managed investment.
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.
Hedge funds: An investment fund where the fund manager is authorised to use derivatives
and borrowing to provide a higher return, albeit at a higher risk.
Inflation: See Consumer Price Index.
Lease: See finance lease.
Lifetime pension or annuity: A retirement income investment where an individual invests their superannuation or other money and receives an income periodically. The capital is not accessible, and there is little income flexibility. The payments are guaranteed to be made for the person’s lifetime.
Lump Sum Tax: Tax payable on a lump sum (ETP) benefit payment from a superannuation fund.
Managed investments or funds:a unit trust that allows investors to pool their money with that of other investors so that the fund can buy a wide range of investments. These investments are managed by a professional Fund Manager, who makes the investment decisions.
Management Expense Ratio (MER): A ratio expressing the management, trustee 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 used to maximise your returns.
Net asset value: The value of a company, or managed fund, which is the assets less liabilities.
Operating lease: A pure rental agreement with no documented residual amount. Goods can be returned to the financier when the agreement expires. Commitments need only be disclosed by way of a footnote to the published accounts and, should the asset be sold for less than the residual amount, the user cannot be held liable. Usually limited to motor vehicles, computers and multi purpose industrial equipment.
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.
Pension: A regular income stream paid to an individual, either by the Government (such as an Age Pension) or from a superannuation benefit.
Pooled investment: An investment where a number of individuals place their money with a professional manager who manages the total fund on their behalf. Also known as a unit trust or managed investment.
Portfolio: The full range of an investor’s, or managed fund‘s, investment holdings.
Post 1983 component: That part of a superannuation benefit that relates to employment service, or superannuation fund membership, since 30 June 1983.
Pre-1983 component: That part of a superannuation benefit that relates to employment service, or superannuation fund membership, before 1 July 1983.
Preservation: A requirement to retain superannuation benefits within the superannuation environment until a condition of release has been met. Under current laws most benefits are compulsorily preserved until a person has retired is at least 55.
Property funds: In a managed investment the term property generally refers to investments in property securities – property trusts listed on the stock exchange. Funds which invest in property securities allow diversification 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.
Product Disclosure Statement: A legal document lodged with the Australian Securities and Investments Commission which details how the fund operates, outlining the nature of the fund(s), how to invest and what returns to expect from the investment.
Rollover/rolling over: The transfer of a superannuation benefit or an eligible termination payment within the superannuation environment between superannuation funds, or from a superannuation fund to a pension or annuity.
Spouse contribution: A contribution to a superannuation fund
from a spouse on behalf of their partner. Taxation offsets may be able to be claimed for such contributions, depending on the spouse’s level of assessable income.
Superannuation fund: A concessionally taxed investment fund for superannuation monies. These funds can accept both
ETPs and other contributions. Generally balances cannot be withdrawn until age 55 and fully retired. These can be run by an employer as a company fund, a fund manager as a personal fund or can be self managed by an individual.
Synthetics: See derivatives.
Trust deed: See constitution.
Unit trust: An investment where a number of individuals place their money with a professional manager who manages the total fund on their behalf. Also known as a pooled investment or managed investment.
Vesting: Relates to superannuation, an employee’s entitlement to optional employer superannuation contributions. Vesting is usually expressed on a scale, for example for each year of service employees are entitled to a further 20% of optional employer contributions. This means that after 5 years of service an employee is entitled to 100% of these contributions if they leave the employer.