EXPLANATION OF FINANCIAL TERMS
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Accumulation units
A type of unit trust for investors
who do not want to receive income. The income is rolled up into the price of the
units. Holders of income units, on the other hand, receive regular dividend cheques
so the price of their units is lower.
Added years
A pension term. Some final-salary
pension schemes allow members to top up benefits through buying extra years of
service. Employees get a good deal because the employer gives a guaranteed benefit
and takes the investment risk.
Affinity cards
A credit card that rewards
you with points or a bonus for use. Some cards pay the reward into a charity.
Appropriate personal pensions
Plans in which National Insurance
contributions are invested by employees who have opted out of Serps, the State
Earnings Related Pensions Scheme.
Advanced Corporation Tax
The 20 per cent tax that companies
are required to pay on dividends when they are paid to shareholders. Tax efficient
schemes such as Peps and pension funds currently reclaim this tax, but ACT is
due to be axed from April 5, cutting investors' returns.
AER
The annual equivalent rate
is new jargon to be found in the advertising of interest-bearing accounts. It
will show the advertised interest rate as if it were paid and compounded once
a year. It is intended to allow customers to compare products more easily. From
1 January 1999 every advert has had to include an AER.
AGM
Annual general meeting for
shareholders. An opportunity to ask the board questions about company performance.
AIM
The Alternative Investment
Market is run by the London Stock Exchange for smaller, often more high risk companies.
Annuity
An income guaranteed for life
paid in return for handing over a lump sum. An annuity is bought at retirement
by holders of most personal pension plans and members of money-purchase company
schemes.
APCIMS
Association of Private Client
Investment Managers and Stockbrokers. The official body for stockbrokers and fund
managers specialising in private clients.
Arbitrage
Buying in one market and selling
in another to take advantage of technical price differences.
Arrangement fees
May also be called application,
lenders' or completion fees. Arrangement fees come in two forms. Some lenders
treat them as a success fee payable when the mortgage goes through. Beware of
lenders who treat them as a booking fee that prospective borrowers pay to secure
a mortgage. If the deal collapses, this fee is forfeited even though the failure
lies outside the borrower's control.
Associated company
More than 20 per cent but less
than 50 per cent held by another company.
ASU
An accident, sickness and unemployment
policy will cover the monthly mortgage repayments for a limited period, usually
a year, if the borrower cannot work because of injury, ill-health or job policies.
Compare these to a mortgage protection policy that will pay off the whole of the
outstanding loan if a borrower dies.
AVC
Additional voluntary contributions
allow company pension scheme members to make extra savings towards their pension.
Employees can contribute the difference between their ordinary contributions,
typically 5 per cent of earnings, and a maximum of 15 per cent.
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