Financial Glossary: A

Accumulation Unit

Type of unit in a unit trust where the income is reinvested automatically, thereby increasing the price of the unit.

Active Management

An active fund manager is one who tries to outperform stock market indices by skillfully selecting winning stocks.

Additional Voluntary Contributions (AVCs)

AVCs are a top-up payments made by people into their pension schemes to boost their eventual retirement income.

There are two types of AVC.

Additional voluntary contributions (AVCs). This type of top-up policy is run by employers, and contributions are normally taken from the employees pay.

Free-Standing AVCs (FSAVC). A top-up pension policy that is taken out with an investment firm, and is separate to an employer's pension scheme.

AVCs tend to be cheaper to make because the administration cost are lower as the employee will already be in the pension scheme. An FSAVC may be slightly more expensive due to an another company making the investment to make your money grow.

The total amount that can be paid into a pension from all sources, including FSAVCs and AVCs must not exceed 15 per cent of your earnings in any tax year. Tax relief is also received on AVCs at your basic rate, as with other pension contributions.

Advisory stockbroker

A broker who gives personalised advice on what shares or other investments to buy.

Annual management charge

This is a charge paid to a company for managing your investments. (This could be a fund manager, stockbroker or financial adviser).The Annual management charge can vary from 0.5 per cent to around 1.5 per cent, and is dependent upon the type of investment and the degree of advice received.

Alternative Investment Market (AIM)

Aim is designed as a separate market for the shares of smaller growing companies that are not yet ready for a full listing on the London Stock Exchange. It allows them access to investment capital without the cost and regulatory burdens of a full listing on the main market. The Aim is usually used as a stepping stone to the main market.

The shares of companies on the AIM can be risky because the companies don't have long track records and if you want to sell your investment there are not always buyers for your shares. However, there is a potential for big rewards.

Amortisation

Amortisation is (1) the gradual writing-off in value of an asset over time - allowance for depreciation, (2) Repayment of a loan by installments.

Annual General Meeting (AGM)

This is the annual shareholder meeting. All companies apart from the very small are required to have an annual general meeting by law. The background to the company's annual accounts are normally covered in the AGM as well voting for new directors.

Annual Percentage Rate (APR)

The APR is the interest rate figure that indicates the total cost of borrowing, including any charges. When you borrow money, every lender is required by law to quote this rate. The APR is the best way of comparing like with like. It was introduced as part of the Consumer Credit Act of 1974 and is mostly used for credit cards, personal loans and mortgages.

Annual report and accounts

All companies that trade on the London Stock Exchange have to provide shareholders with an annual report and accounts. The annual report and accounts show all the financial facts and figures for the year, including profits and losses, and the directors' salaries and pay increases.

Annuity

An annuity is essentially a regular income for life and is usually purchased with your pension fund when you retire. The rate of income you receive from the annuity will depend on your age and the amount of capital you invest. For example, if you are 65 years old, you will receive less as opposed to 75 years old because you are expected to have a longer life than a 75 year old. It is best to shop around rather than just accept the annuity quote given to you by your pension fund provider because there are several different options available.

Annuity Share

This is essentially another term for an income share within a split capital investment trust. It is not usually worth much at the end of the trust term because the capital value is distributed as income to the investor.

Approved Investment Trust Company

This is an investment trust company that doesn't have to pay capital gains tax on profits, that it makes from the sale of investments within its portfolio.

Arbitrage

This is the process of buying securities at a low price in one market and simultaneously selling them in another market at a higher price to make a profit.

In share trading, Investors called risk arbitrageurs attempt to make profits from an expected rise in the price of a takeover target's shares and a drop in the price of the bidding company's shares. These traders simultaneously buy stock in the target company while selling those of the bidding company. They will also invest in the target company if they think, the bidder will be forced to raise his offer price.

Ask price

The lowest price at which an investment can be sold at a given moment.

Association of Investment Trust Companies (AITC)

The AITC is the main trade body representing over 300 investment trusts.The industry has often laboured in the shadow of unit trusts, even though investment trusts are generally cheaper and can offer better returns over the long term.

Association of Unit Trusts and Investment Funds (AUTIF)

Autif is the main trade association for the retail fund management industry. It promotes investment in mutual funds, such as unit trusts and open-ended investment companies (OEICs), including individual savings accounts (ISAs) and personal equity plans (PEPs). It also lobbies government and liaises with the regulators on behalf of its members, which manage around £255 billion of assets.

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