

GLOSSARY OF TERMS |
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
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Accumulation units
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A type of unit in which any income is added to the value of the
units. Designed for people who prefer their income to be reinvested. Only
available on a limited number of funds.
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Adverse Credit
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This is the term used for people who have a poor credit
history. This could include previous mortgage or loan arrears, CCJ's or
bankruptcy.
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AER
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This stands for Annual Equivalent Rate. This rate is
generally quoted on interest paid on savings and investments. Interest paid
monthly, quarterly or half-yearly represents a higher true rate than the same
stated interest rate paid annually. Thus, the AER allows you to compare
interest rates across accounts and reflects not just the amount of interest
but also how often it is paid. It shows what your interest return would be if
the interest was compounded and paid annually instead of monthly (or any
other period).
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Affinity /
Donation Cards
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These are issued by credit card companies and operate
as standard credit cards but a percentage of purchases made via card usage is donated to a charitable beneficiary by the issuer. A
donation may also made to the beneficiary on issue
or first use of the card.
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Allocation Rate
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The difference between the buying price
("Offer Price") and selling price ("Bid Price") of an
investment, calculated as: (Offer Price-Bid Price)/Offer Price. This
is the percentage of a payment that is invested once charges have been
deducted.
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Alpha
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A statistical term used to measure the contribution to portfolio
performance from good stock selection.
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Annual
Management Charge
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This charge is deducted from an investment each year
and is usually worked as a percentage of your investment.
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Annuity
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An annuity provides a guaranteed income for life in
return for a lump sum invested. There are two types of annuities; Compulsory
purchase and Purchased life. Compulsory purchase annuities are bought with a
payment from an employer's pension scheme or personal pension fund. Part of
the fund may be paid out as tax-free cash, the
remainder must be used to buy an annuity.
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APR
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This stands for Annual Percentage Rate. Any firm that
lends money is required by law to quote the APR. Introductory rates do not
include arrangement fees you may be charged and also don’t reflect any higher
rate of interest that your borrowings will ultimately revert to. The APR
takes into account the interest on a loan plus and additional charges making
it easier for you to compare products. In general, the lower the APR the
better the deal.
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Arrangement Fee
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This is a fee you a Lender for providing you with a
mortgage or loan. They are usually paid on completion and tend to apply when
you take out a fixed rate, discount or cash back mortgage.
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Asset Allocation
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Shows the proportion of your portfolio invested in different
geographical areas or sectors or in different types of investment (e.g.
equities, fixed interest).
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ASU
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This stands for Accident, Sickness and Unemployment
insurance. This insurance covers mortgage repayments in case of accident,
sickness or involuntary unemployment.
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AVC
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This stands for Additional Voluntary Contributions. As
a member of an Occupational Pensions Scheme these are payments made above the
normal level of contribution to gain additional pension benefits.
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Bank of
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The Bank of England is the central bank of the
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Bankers Draft
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A bankers draft is a secure way of receiving money
where you fear a cheque may bounce. The draft is a cheque which is drawn
directly on the bank or building society against funds in a bank account.
There is usually a fee for obtaining a bankers draft.
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Base Rate
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Base rate (sometimes called the repo rate) is the
interest rate set by the Bank of England which determines borrowing and
savings rates.
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Bar
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An investment strategy that combines two types of investment at
each end of a spectrum (e.g. high yielding equities and nil yielding growth
stocks).
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BBA
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This stands for British Bankers' Association who are
the trade association for British banks.
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Benchmark Index
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A designated index considered the most
appropriate for comparing the performance of a fund. See Relative Performance.
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Beta
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A statistical term used to measure the sensitivity of an
investment to market movements. A Beta greater than 1 indicates that the
investment will amplify market trends.
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Bid/Offer Spread
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The difference between the buying price
("Offer Price") and selling price ("Bid Price") of an
investment, calculated as: (Offer Price-Bid Price)/Offer Price.
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Blue Chip Share
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Usually used to describe a large company in the leading index,
such as the FTSE 100.
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Bond
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This term can have different meanings. See Corporate Bond, Insurance Bond.
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Bottom up
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This describes a fund manager who selects stocks purely on the
fundamentals of the company alone, as opposed to taking a view on the
economic environment. See also Top Down.
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Bridging Loan
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This is a short term loan that 'bridges' the time
period between two property transactions. It is used to cover shortfalls
between buying one property and selling another. Major banks and building
societies can offer bridging finance.
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BSA
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This stands for Building Societies' Association which
is the trade association for British building societies.
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Buffer Zone
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These are facilities on some bank accounts whereby you
can go overdrawn to a certain limit without being charged and sometimes
without paying interest.
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Building Society
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A building society is a mutual organisation owned by
its members - its savers and borrowers - and not by shareholders.
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Buildings & Contents Insurance
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This is a combined insurance policy that covers the
cost of rebuilding or repairing a property and replacing damaged or stolen
contents.
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Business Current Accounts
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Business current accounts are available to non-personal
customers, for example clubs, charities, and companies. Availability may be
restricted by customer type, minimum balance requirements or business
turnover.
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Buy-to-Let Mortgage
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Buy-to-let mortgages are provided for property
purchases or remortgages for investment in the private rental sector.
Assessment of borrower affordability can be based on projected rental income
and/or earnings, dependent on the lender's individual policy.
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Call option
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This is a financial instrument, which gives the holder the right
but not the obligation to buy a security, or index, at a predetermined price,
on or before its expiry date.
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Capital
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If this refers to borrowing this is the amount owing
not taking interest into account. When investing, this is the original
investment amount.
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Capital & Interest mortgage
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This is also known as a repayment mortgage. With a
repayment mortgage, the money you pay each month covers both the interest and
capital of the loan. This means that at the end of the term you don't need
any extra money to pay off the loan.
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Capped Rate
Mortgage
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A capped rate mortgage has a maximum interest rate for
a given term. The interest rate you pay cannot go higher than the agreed
capped rate, thus you know the maximum amount your monthly repayments could
rise to. However, if the basic interest rate falls below the capped rate,
repayments will also reduce.
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Cash Back Mortgage
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This gives you a cash rebate on completion of the
purchase. The sum is either a percentage of the advance or a fixed sum. This
cash back could help you to cover some of the expenses of setting up home but
this bonus is often subject to higher repayment rates and may include penalties
for repaying the loan early.
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Cash Card
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These are plastic cards used for withdrawing cash from
Automatic Teller Machines (ATMs) - also known as hole in the wall machines.
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Cashflow
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The cash generated by a company, generally calculated as earnings
before interest, depreciation, amortisation, tax and fixed asset additions.
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CCA
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This stands for the Consumer Credit Act. This
legislation sets the rules for the way in which
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CGT
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This stands for Capital Gains Tax. This is a tax on the
increase in the value of an asset since it was purchased. Everyone is allowed
to make a certain level of profit each year before capital gains tax is
charged. The amount of the allowance is £8,200 for the 2004/2005 tax year.
This amount is reviewed annually in the Budget.
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CHAPS
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This stands for the Clearing House Automatic Payment
System. It is the electronic transfer of payment between two accounts.
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Chargeable Event
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The circumstance in which a higher rate tax liability may arise
in the case of an Insurance Bond, usually being a surrender or withdrawal of
more than 5% p.a.
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Cheque
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A written order directing a bank to pay money.
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Child Trust Fund
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The Child Trust Fund became effective on 6 April 2005,
for children born on or after 1 September 2002. Children in receipt of Child
Benefit will receive a sum of £250 in the form of a voucher to be used to
open either a cash or equity based account on behalf
of the child. Families in receipt of full Child Tax Credit or certain
benefits when Child Benefit was first paid will receive a further £250. If an
account is not opened within a year, the Inland Revenue will open a
Stakeholder account on behalf of the child. Parents, grandparents and friends
will be allowed to make additional deposits up to a maximum of £1,200 each
year. At age 7 the Government will make a further payment to the account,
currently proposed at a minimum of £250, at age 16 the child can begin to
make decisions about how the money is managed, and at age 18 the account
matures and the child receives the proceeds. No withdrawals are permitted
during the 18 year term.
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Closed End Fund
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An investment plan where the number of shares
or units is fixed, e.g. an Investment Trust. New investors must buy shares or
units from existing holders. The price of shares or units may be higher or
lower than the underlying asset value.
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Collective Investment
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A structure that allows individuals to have a
proportionate interest in a pool of investments, e.g. Unit Trust, OEIC,
Investment Trust, or Insurance Bond.
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Commercial
Mortgage
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Commercial Mortgages are used to purchase a business
property or going concern, for the expansion of existing business premises or
for property development. Commercial property includes shops, public houses
and farms.
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Commission
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This is an amount paid to a provider or intermediary
for placing business.
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Company Pensions
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A pension scheme set up by an employer to provide
retirement benefits to employees.
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Completion
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Once the purchase of a property is complete and you are
the new owner.
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Compulsory
Purchase Annuity
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Compulsory purchase annuities are bought with a payment
from an employer's pension scheme or personal pension fund. Part of the fund
may be paid out as tax-free cash, the remainder must
be used to buy an annuity. The income payments (usually monthly) from this
type of annuity are taxed as earned income and are usually paid to the
recipient net of basic rate tax. Higher rate taxpayers may be liable for
additional tax which at present has to be collected separately.
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Consolidated
Loan
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This is a loan taken out to consolidate debts.
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Convertibles
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Convertibles are fixed interest securities, which pay a fixed
amount of income until maturity. They can, however, be converted into
ordinary shares of the underlying company during certain times.
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Conveyancing
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The legal process involved in buying and selling a
property.
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Corporate Bonds
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Fixed interest securities issued by companies.
They usually pay a fixed rate of interest but capital values fluctuate
broadly in line with Gilts.
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Corporation Tax
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This tax is payable by companies on their profits.
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Cover Note
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This is a temporary certificate that shows an insurance
policy is in place.
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Credit Card
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Credit cards are a form of borrowing used to purchase
goods and services, to obtain cash advances and for consolidating debt.
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Credit Rating
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This is a scoring system that lenders issue people with
to determine how credit worthy they are.
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Credit Search
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This is a check a lender may take out to determine
whether a person has any County Court Judgments or a record of not repaying
debts.
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Critical Illness Cover
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This insurance pays out if the holder is diagnosed with
an illness covered by the policy.
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Current Account
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These accounts offer the facility of a chequebook /
cash card and do not require any notice to be given to withdraw funds. The
accounts vary in the facilities offered such as cheque guarantee cards, debit
cards and overdrafts etc
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Current Account & Offset Mortgage
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A current account mortgage allows you to operate your
mortgage borrowing through a current account. This method enables you to save
interest as your normal cash-flow will alter the outstanding debt. You will
be required to pay your salary into the account. An offset mortgage allows
you to keep your balances e.g. mortgage, savings, current account etc in
separate accounts but all balances are offset against each other thus
allowing the possibility of reducing the interest paid and could result in
the mortgage being repaid early.
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Currency hedge
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This is a method to reduce the uncertainty about the future
direction of a currency. This can be achieved by purchasing the currency in
the forward market, or taking out an option which limits the option holder's
exposure.
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Cyclicals
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Shares which are closely linked to the business cycle, generally
found in old economy sectors such as chemicals, paper & packaging and
construction.
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Death Benefit
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A sum paid when the insured life deceases.
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Death in service
benefit
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A sum paid by an employer to beneficiaries if the
insured person dies whilst still under their employment.
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Debit Card
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A debit card allows you to make purchases and withdraw
cash by using funds from your bank account. These funds are automatically
withdrawn from the connected account. They act as an alternative to cash and
cheques.
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Decreasing Term Assurance
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Decreasing Term Assurance indicates that the sum
assured decreases over the term of the policy. This is commonly used to
protect a capital & interest repayment mortgage, where the outstanding
balance reduces during the life of the borrowing.
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Deed
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This is a legal document that shows who legally owns a
property.
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Deed of Assignment
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A form of gift, allowing an insurance bond to
be transferred from one person to another without any transfer tax charge
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Direct Debit
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This allows an organisation to take money directly for
a persons bank account.
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Discounted
Mortgage
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A discounted mortgage offers you reduced repayments for
a given term. The lender gives a discount off a variable rate. For example,
the variable rate may be 5% with a discount of 1% making your initial
interest repayment rate 4%.
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Discrete year
performance
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Breaks down fund performance into individual
years. Usually more informative than cumulative figures which emphasise
recent performance.
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Diversification
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Holding more than one asset to broaden overall
risk of failure
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Dividend
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Money paid to shareholders.
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Dow Jones
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An index of some of the largest companies listed on US stock
markets. It is simply calculated taking the arithmetic mean of 30 shares and
so its performance can differ markedly from more broadly based indices such
as the S&P 500. Values are real time.
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Duration
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A term used to measure the average maturity of
a fixed interest bond. This is usually shorter than the period to redemption,
reflecting the cashflow benefit of interest payments.
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Early Exit Penalty
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A special charge made when an investment
policy is surrendered.
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Early
repayment charge
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If you repay (redeem) your mortgage at any time prior
to the end of the mortgage term you may have to pay certain fees or an
interest penalty (redemption penalty). If the mortgage is repayed in the
early years there may be a heftier penalty, a product penalty. An extended redemption
tie-in means that this penalty will continue to be payable beyond the initial
term of the mortgage.
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EASDAQ
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This is a Pan European regulated stock market. Trading takes
place through member firms in 15 countries.
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Endowment
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An endowment policy is a savings policy which provides
life assurance cover for a policyholder. The policy exists for an agreed
term, the minimum term usually being 10 years. A cash sum is paid out at the
end of the policy term (on maturity), or in the event of the earlier death of
a policyholder, either a predetermined sum (in the event of death) or an
agreed capital sum on maturity.
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A tax incentive to encourage investment in
smaller, unquoted companies.
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Enterprise Zones
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Certain regions of the
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Enterprise Zone
Property Trusts
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A collective investment to allow private
individuals to invest in properties situated in Enterprise Zones.
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Equities
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See 'Ordinary Shares'.
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Equity Release
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This is the process in which a new larger mortgage or
an existing mortgage is increased to release some extra funds.
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Estate
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This is the money, property, belongings and debts
belonging to a person when they die.
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Euro
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The basic monetary unit of most members of the European
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Financial Ombudsman Service
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The body that handles complaints about financial firms.
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Final salary scheme
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This is a pension scheme where the amount of benefit is
based on final salary.
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Financial Strength
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A way of measuring whether a Life Office is capable of meeting
future liabilities.
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Fixed rate
account
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These accounts offer a fixed rate of interest over a
defined period. This means that the interest paid on the account will not be
affected by changes in interest rates for a specified term.
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Fixed rate bonds
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Fixed rate bonds are savings products where you deposit
a lump sum for a specific period. In return you get a fixed rate of interest.
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Fixed rate
mortgage
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If you choose a fixed rate mortgage your monthly
repayments will not change for the period of the fixed rate, regardless of
the interest rate in the market place. This may be important to you if you
have a limited budget as you are protected from rising interest rates.
However, if the variable rate falls below the fixed rate level, your
repayments will not fall.
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Flexible
Mortgage
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The main feature of a flexible mortgage is the facility
to make extra payments when you have extra money. You may also be able to reduce
monthly repayments or even take repayment holidays, although you will
normally have to build up a reserve through making overpayments before this
arrangement is allowed. Such mortgages are usually offered on a daily
interest basis. Flexible mortgages usually provide a loan drawdown facility
that allows you to borrow extra funds at a set predetermined rate.
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Franked Income
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Dividends received from shares or unit trusts, net after
corporation tax has been deducted.
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Free Asset Ratio
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The term given to the reserves a Life Office
possess [assets minus liabilities]. The larger the free asset ratio the
better.
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Freehold
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Freehold means that you own both the building and the
land it is on.
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FSA
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This stands for Financial Services Authority who
regulates the
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FTSE 100
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This index is designed to represent the performance of the 100
largest
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FTSE 250
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This index represents the next largest 250
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