Glossary of Terms

Glossary of Terms

Are you ever confused by financial planning technical terms in things you hear or articles you read? In some cases, the words may sound impressive; in other cases, intimidating or confusing. We have summarized below some frequently used phrases we are often asked to explain further to our clients.


Annuity – A payment at regular intervals of a certain sum of money for a term of years or during the life of an individual.

Assets – Everything that a person or company owns or has a right to, from which a benefit can derive. Net assets are assets in excess of liabilities. Liquid assets are assets either in the form of cash or readily convertible into cash.

At call – Funds which can be withdrawn on demand or without notice.

Balanced Trust– Balanced Trusts invest in the broadest spectrum of investment markets, including shares, listed property trusts and government securities. The main advantage in making this type of investment lies in the flexibility afforded to their fund managers in being able to alter the investment composition of the trust in the light of changing economic and investment conditions to pursue the best results.

Blue Chip Stock – Shares in a well established company highly regarded in financial circles.

Capital Growth– The increase in value of an asset or investment i.e. the difference between the current values and the original purchase price. (Provided the result is positive, not negative)

Capital Guaranteed – An investment where your money (principal) is guaranteed safe; usually by a bank, government body, or life insurance company.

Cash Management Trust – A unit trust where investors (unit holders) pool their money into money market instruments which are normally only available to professional investors with hundreds of thousands of dollars to invest in the money market. Cash trusts operate with a trust deed, a trustee overseeing activities and a management company responsible for the investment strategy.

Compound Interest – Interest which is paid on accumulated interest as well as the original principal invested.

Consumer Price Index (C.P.I) – Measures the national inflation rate. The index is measured quarterly (December, March, June and September quarters) and reflects changes in prices (up or down) of a fixed “basket” or list of goods and services.

Debenture – A type of fixed interest security, issued by companies (as borrowers) in return for medium and long term investment of funds. Debentures are issued to the general public through a prospectus and are secured by a trust deed which spells out the terms and conditions of fund-raising and the rights of debenture holders. typical issuers of debentures are finance companies and large industrial companies.

Deferred Annuity – An annuity where income payments do not commence i.e. are deferred until a specified date in the future.

Dividend – The share of profits distributed to shareholders of a publicly listed company.

Dividend Imputation – A tax system, where dividends paid by a taxpaying Australian company to its shareholders, carry a credit for the tax the company has already paid on its profits. This means that shareholders receive a reduction to the tax normally payable.

Eligible Termination Payment (ETP) – This is the term used to describe lump sum funds received when retiring or changing employment that can be rolled over into an Approved Deposit Fund or Deferred Annuity. ETPs can include payments from a superannuation fund, approved deposit fund, deferred annuity, commutation of an annuity / pension , unused sick leave and ‘golden handshakes.’

Franked Dividend – A dividend distributed by an Australian company out of profits on which company tax has been paid.

Investment Bonds – A lump sum investment product. Technically, an investment or insurance bond is a single premium lump sum investment, life insurance contract.

Maturity – The date on which a debt or other borrowing is due to be repaid.

Negative Gearing– A way of obtaining tax advantages through an investment where the deductible expenses (typically including interest) exceed the income derived from the investment.

Pension – A regular payment made to a person from a superannuation fund or from the Department of Social Security or Department of Veterans Affairs.

Rollover – The renewal of a loan facility or continuation of a deposit at each maturity date, usually including a revision of the interest rates. (The term is also used to describe the transfer of Eligible Termination Payments to an acceptable superannuation or rollover fund.)

Shareholder – A person who buys a portion of a public or private company’s capital. By doing so that person becomes a shareholder in that company’s assets and receives a share of the company’s profit in the form of dividends.

Superannuation – An investment vehicle which operates primarily to provide benefits for retirement. Superannuation savings are usually made through trust funds and if these funds meet prescribed government standards they are eligible for tax concessions.

Term Deposit – Money invested for a fixed term at a fixed rate of interest which applies for the duration of the deposit.

Unit Trust – A unit trust is an investment which operates under the unit principle enabling investors to share in a pool of professionally managed investments. The success of a unit trust depends on the expertise and experience of the management company which is responsible for the trust’s investment strategy. Common types of investment undertaken by unit trusts are property, shares, mortgages, and the Short Term Money Market.