Finance, Stocks, Shares & ISA glossary – A-Z Definitions – explained
A high risk, non-investment grade bond with a low credit rating. Junk bonds carry high rates of return but are very risky as there is a chance the company will default and you will lose your investment.
London Interbank Offered Rate. The rate at which international banks lend to each other, and which helps determine the level at which lenders set rates on new mortgage deals.
Monetary Policy Committee
The Bank of England committee that sets interest rates every month.
This is the market value of a fund’s investments, minus its liabilities, and then divided by the number of shares in issue to get a figure per share.
A savings account where you have to give notice before you can make a withdrawal.
Open-ended investment company. Similar to a unit trust in that it is an open-ended collective investment, but an OEIC fund has a single price, directly linked to the value of the fund’s underlying investments.
When a fund or portfolio holds more of one particular asset than the appropriate index or benchmark.
A fund that tracks rather than tries to beat a particular stockmarket index.
How a fund or stock has performed previously. Past performance is no guarantee of future results.
Price-to-earnings ratio. This is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share.
Personal equity plan. The predecessor to ISAs and a tax-free savings product designed to encourage investment in shares. Peps were withdrawn from sale in April 1999 when ISAs were introduced.
Permanent interest bearing shares. These are securities issued by building societies, usually at fixed interest rates, and quoted on the stock market. They offer a set income paid twice yearly, net of basic-rate tax. All Pibs are permanent and have no maturity date.
A special class of share which pays a fixed rate of interest, but which does not usually carry voting rights. Preference shareholders don’t fare as well as ordinary shareholders if a company does well because they continue to be paid their fixed rate of interest, rather than increased dividends.
Money invested in companies that are not publicly traded on a stock exchange.
This happens when a country’s central bank prints new money in order to increase the supply of money.
A recession is where a country’s economy shrinks for two consecutive quarters (equivalent to six months) as measured by gross domestic product (GDP).
Usually given as a percentage, the return takes account of the income generated and the increase in value of an asset over a given period. Often confused with yield, which only takes account of the income.
A stake in a company. Shares are also known as equities.
This occurs when speculators contract to sell shares at an agreed price in the hope that the stock will fall below the agreed price before the contract must be fulfilled.
A place for dealing in stocks and shares (equities) such as the Stock Exchange.
A tax on the purchase of shares and property. Stamp duty is a flat rate of 0.5% on shares but is tiered for property.
Swap rates reflect the market’s view of future interest rates. They determine fixed-rate borrowing costs for banks and building societies and influence the rates charged to retail savers and borrowers on fixed rate mortgage and savings accounts.