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Understanding financial Jargon P - T

 

Understanding the lingo can be overwhelming, here are some basic terminologies to help you get an edge on your friends, family and colleagues.

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Portfolio
The list of holdings in securities owned by an investor or institution.

  

 

Preserved benefit
Amount of members’ benefits required to be preserved in a fund until a member satisfies a condition of release as set out in the SIS Act or Regulations (eg. retirement, death, permanent departure from Australia, permanent incapacity, attaining 65 years).

  

 

Property
Refers to direct property investment, which covers a wide range of real assets including office (commercial), retail (shopping centres), industrial, hotel and leisure as well as residential properties.

 

Put option
The right, but not the obligation, to buy a financial instrument or a commodity within a specified period.

 

  

 

Real return
The rate of return on an investment in excess of inflation. For example, if the rate of return is 10% but the inflation rate is 3% the real return is 7% (= 10-3%).

 

Resource
Any physical item produced for trade purposes. Australia’s resources include coal, gold, aluminium and oil.

 

Return Multiple
A common measurement used in the private equity market is the amount realised for the investment divided by the original cost of the investment, otherwise known as realisation ratio or return multiple. The measurement does not take into consideration the time value of money.

 

Risk
In investment terms risk is a measure of volatility. Volatility is a measure of the variability of returns and is the standard deviation of investment returns over a specific period of time. The higher the standard deviation, the higher the level of risk associated with that investment.

 

Running yield
The interest rate on an investment expressed as a percentage of the capital invested, thus showing the actual cashflow of the amount paid for the investment.

 

 

Securities
Written undertakings securing repayment of money. They are typically negotiable instruments such as bonds, bills of exchange, promissory notes or share certificates which establish ownership and payment rights between parties.

  

 

Shares
Also known as equities. A person who buys a portion of a company’s capital becomes a shareholder in that company’s assets and as such receives a share of the company’s profits in the form of an annual dividend. There are different types of shares, for example ordinary, preference, cumulative preference and participating preference shares.

 

Short term investment
An investment which generally matures in less than two years.

 

SMP
Separately managed portfolio.

 

Socially Responsible Investment (SRI)
An innovative form of investing because it focuses on investing in companies that will form part of a socially and environmentally sustainable world. SRI aims to achieve more than financial returns. Its non-financial aims include issues such as attempting to boost working conditions and helping the environment.

 

Superannuation guarantee charge (SGC)
This is the penalty imposed on an employer if they do not pay the required superannuation guaranteed contributions.

 

SIS
Superannuation Industry (Supervision) Act 1993. This is now the governing legislation for superannuation funds, approved deposit funds (ADFs) and pooled superannuation trusts. The trustees of these entities must comply with SIS in order for the funds to be concessionally taxed.

 

Start-up Capital
Financing provided to companies which have not yet fully established commercial operations and may also involve continued research and product development. Essentially it is money provided to companies to develop a concept.

  

Superannuation
A pension or payment to a person retiring from full-time work on reaching a legislated age. The term also refers to the accumulating contributions by employers and employees to a superannuation fund.

 

Superannuation trust
Commonly refers to tax-free investment trusts open only to trustees of superannuation funds and not private investors.

 

 

Syndicate
A collection of investors will pool their financial resources to simultaneously purchase securities from a corporation.

  

Trust
An arrangement whereby an asset is held by a person or persons (the trustees) for the benefit of some other person or persons (the beneficiaries).

 

Trust deed
The formal legal document which sets out the rules governing how a fund operates.

 

Trustee
An individual or company with the duty to ensure that the rules of the trust deed are adhered to. Trustees are normally responsible for the running of superannuation plans and are bound by the trust deed, the relevant trust law and the SIS Act.

 

Trustees’ discretion
Decisions which, under the trust deed and/or rules for a plan, are specified to be exercisable in any manner, solely at the discretion of the trustees. Eg. death payments.

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