EXPLANATION OF FINANCIAL TERMS
Insurance taken out through
a dentist. The premium depends on the health of your teeth.
Capital Gains Tax
Tax paid on any capital gains
realised in a tax year, over and above the capital gains tax exemption limit for
that year. It is charged at the taxpayer's marginal or top rate of tax.
The rates on capped loans cannot
go up but can go down. However, the variable rate needs to fall below the capped
rate before the capped rate is reduced. Some capped mortgages have a collar which
sets a minimum for the capped rate loan.
Compounded annual rate of interest.
Used by banks and building societies to give an annual comparison figure for accounts
that pay interest monthly or half yearly.
The practice of opening a savings
account or taking out a mortgage with a building society in the hope that it floats
on the stockmarket or is taken over. Members of the society are customarily rewarded
with free shares in recognition of their legal ownership of the society. The practice
is now spreading to mutually owned insurers.
The art of comparing share
price graphs. The theory is that you find a discernible trend that predicts future
movements. The answer may or may not prove correct.
A fee paid by a company to
a salesman or financial adviser for selling its products. Some companies pay higher
rates of commission than others. The commission must now be disclosed to the client
and some independent financial advisers will offer to share commission with investors.
A liability in a company's
balance sheet that may or may not come home to roost in the future. It is contingent
upon future events.
Confirmation from a broker
of the deal that has just been done.
Corporate bonds or preference
shares that can be converted into ordinary shares at a set price on set dates.
A number of days, typically
10 or 14, during which you can change your mind about an investment and get your
money back without penalty.
Loan stock or "IOU" issued
by companies to raise capital. The company promises to pay a certain amount of
interest on a set date every year until the redemption date, when it repays the
loan. Investors are paid a fixed rate of interest and so bonds are also referred
to as fixed-interest securities. Like shares, bonds are traded on the stock market
so their prices are not fixed, although they may have a fixed repayment value
Not all Peps hold shares. Since
summer 1995 corporate-bond Peps have been available. They can be used to invest
in bonds directly or through unit trusts and are especially useful for investors
seeking a high income.
The running of a company and
a big issue for the City. Both Cadbury and Hampel reported on the problem but
investors should always look closely at how a company is run.
The London Stock Exchange's
paperless share settlement system.
Critical illness insurance
Cover that pays out a lump
sum if you are found to have one of a pre-specified list of life threatening conditions.