Investing jargon buster

Dividend payments make up the income for shareholders in a company, and are usually paid every six months. They are the investors' share of the profits. They are not usually guaranteed, though dividends on preference shares are paid at a fixed rate, which is set at the time of the issue..

Financial adviser:

A firm or individual who offers advice about insurance, investments and other aspects of personal finance. In the case of investments, advisers must either sell the products of a single company (tied advisers) or advise on the full range of products available (independent financial advisers or IFAs). Investment advisers must be authorised by one of the regulators set up under the Financial Services Act 1986 and must comply with rules designed to protect investors. Do not deal with an investment adviser who is not authorised. Advice about non-investment products, such as mortgages and most types of health insurance, is not so strictly regulated.

Gilts:

Gilt-edged securities, government bonds that pay a fixed rate of return and can be redeemed at face value after a period of time. The name of the gilt reflects its rate of return and the date at which it will be redeemed; for instance, Treasury 7% 2001 will pay seven percent each year until redemption in 2001.

Investment trusts:

An investment, suitable for lump sums or regular saving, which gives you a stake in a fund of different shares and/or other investments. You acquire this stake by buying the shares of the investment trust which is itself a company quoted on the stockmarket. Pooled funds, like investment trusts and unit trusts, are generally a good choice for investors who do not have enough capital to build up their own broad base of investments. However, investment trusts are more risky than unit trusts because their share price can rise and fall in a way that does not necessarily reflect the value of the underlying investments and also investment trusts can borrow money to invest which exaggerates both gains and losses made by the trust.

There is a wide choice of investment trust shares offering income, capital gain or a combination of both. Most investment trusts are eligible for investment through a personal equity plan.To invest, contact the trust managers direct or via a financial adviser. Click here to learn more about investment trusts.

Isas (or individual savings accounts):

A tax-free way of savings. Individuals can invest a total of £7,000 per year, of which £1,000 may go into life insurance and £3,000 into cash deposits. The remainder of the money will be invested into shares, unit trusts or investment trusts. Click here to find out more about ISAs.

Junk bonds:

US bonds that are rated below investment grade and are therefore generally higher risk. Certain financial institutions such as pension funds are not allowed to invest in any company that falls below investment grade.

Krugerrand:

A gold coin introduced by South Africa in the 1970s to encourage investment in gold.

OEICs:

Open-Ended Investment Companies are similar to unit trusts but take corporate form and have boards of directors. They are essentially investment funds and their sole function is to own stocks and shares, gilts, bonds and cash. The Treasury sees them as another way of promoting wider share ownership and saving for the future.

Scrip

This is the technical name for taking shares instead of cash for your dividend (see above) paid out on the shares.

Shares:

Buying shares gives you a slice of the ownership of a company. You run the risk of losing your money if the company does not do well, but equally you share in the profits if the company booms. Over the long-term, shares tend to outperform inflation and the return on lower-risk investments, such as deposits and bonds. The return from shares can take two forms:

• capital gain, if you can eventually sell the shares for more than you paid for them, and
• dividends which are regular income payments. Large companies usually pay dividends, though they are not guaranteed and the amount can vary.Other companies - for example, young businesses still getting established - might not pay out dividends at all.

There are various types of shares, for example, ordinary shares are most common. With preference shares, you receive dividends (if they are paid) ahead of any dividends paid to ordinary shareholders.

Unit trust:

An investment suitable for lump sums, regular savings and ad hoc saving. You buy units in an investment fund which itself invests in shares, government stocks, corporate bonds and/or other investments. The price of the units varies directly in line with the value of the investments in the fund. Many unit trusts are eligible for investment via a personal equity plan.

Click here to find out more about Unit trusts. You can also search our list of unit trust providers.

Venture capital:

Money put up to back high-risk commercial ventures. The investor will expect a high return to compensate for the higher-than-average risk in the investment.