Website Glossary

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C

Cancellation price

For *dual-priced* funds this is the lowest possible price at which an investor can sell *units*/*shares* back to the *manager* under *FSA* regulations.  It excludes *exit charges*. The cancellation price represents the proceeds the fund would receive if the fund’s *assets* were sold.

Capital

The amount of money you initially put into your savings or investments before it receives any *interest* or *capital growth*.  In a fund “capital” can also refer to the *assets* held by the fund excluding any *income* the fund may receive.

Capital gains tax

Tax paid to HM Revenue and Customs on any increase in the value of your savings or investments. The tax is payable on the profits you make when you sell your *units*/*shares*. There is an annual exemption limit; for the current tax year this is £10,100. 

Capital growth

The increase in the value of your investment, excluding any *income*.

Cash

In saving and investment terms "*cash*" refers to a bank or building society *deposit account* in which your *capital* is secure.  It can also refer to *money market funds*.

Cash funds

Alternative name for *money market funds*.

Cautious Managed Funds

The IMA definition of a cautious managed fund is - Funds which invest in a range of assets with the maximum equity exposure restricted to 60% of the fund and with at least 30% invested in fixed interest and cash.  There is no specific requirement to hold a minimum % of non UK equity within the equity limits. Assets must be at least 50% in Sterling/Euro and equities are deemed to include convertibles.

Child Trust Fund (CTF)

A Government initiative to provide children who receive child benefit with a long-term savings account.  Eligible children will receive a voucher worth at least £250 to invest in a CTF.  In addition, up to £1,200 a year extra can be invested in each account and the money cannot be withdrawn until the child reaches 18 years of age.  Accounts can invest in a whole range of *assets*. IMA's Child Trust Fund fact sheet can be viewed here.

Closed ended funds

Unlike *unit trusts* and *OEICs*, which are open-ended, these are funds which only have a fixed number of *units*/*shares* in issue at any time. The price of units/shares in such funds, which include *Investment Trusts*, will fluctuate according to investor demand rather than as a result of changes in the value of their underlying *assets*.

Collective investment schemes

Funds which pool investors’ money and invest on their behalf. This term refers to *unit trusts* and *OEICs*. 

Compounding

The process by which your investment grows in value over time with reinvested *interest* or *dividends*.

Corporate bonds

*Fixed interest securities* issued by public companies.

Creation price

For *dual-priced* funds this is the highest possible price at which an investor can buy *units*/*shares* from the *manager* under *FSA* regulations. The *initial charge* is not included. The creation price represents the cost of buying the fund’s *assets*.

Credit ratings

Ratings provided by specialist *credit agencies* which assess the likelihood of companies being able to meet their financial obligations.  Ratings range from AAA (the most secure) to D (the least secure); the greater the *credit risk* the lower the rating.

Credit Risk

Usually used when referring to investment in *bonds*, *credit ratings agencies* estimate the likelihood that the issuer of the bond will not be able to keep up your *interest* payments or repay your *capital* at the end of the holding period. ‘Triple A’ or ‘*investment grade rated*’ are considered to be the lowest credit risk while *non-investment grade* also known as junk bonds and are rated triple B-D are the highest credit risk.

Currency risk

When the *manager* buys investments in currencies other than Sterling there is a risk that the value of those investments will change due to changes in currency exchange rates.

Current yield

See "*Running yield*".

Custodian

Usually a major banking group, the custodian is appointed by the fund’s *trustee* or *depositary* to safeguard the fund’s *assets*.