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Glossary

Here you’ll find definitions of terms used on the AIC site. Enter the term you want to search for in the box, or click on the letter it begins with.

Most frequently searched terms can be found below

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The difference between the prices at which you can buy and sell shares and securities. It’s also known as the ‘spread’ or ‘bid-offer spread’.

When you buy and sell shares in investment companies, you may see two prices quoted:

  • the higher price (the 'offer' price) is the price that you can buy the shares for.
  • the lower price (the ‘bid’ price) is the price you can sell the shares for.

The difference between the two is the dealing spread.

If you buy shares, you’ll need the bid price of the shares to rise by more than the dealing spread to make a profit. The dealing spread varies between investment companies. For example, large generalist investment companies may have smaller spreads than more specialist smaller investment companies.

See also share price.

Ways in which investment companies can magnify income and capital returns, but which can also magnify losses.

At its simplest, gearing means borrowing money to buy more assets in the hope the company makes enough profit to pay back the debt and interest and leave something extra for shareholders.

However, if the investment portfolio doesn’t perform well, gearing can increase losses. The more an investment company gears, the higher the risk.

Investment companies can usually borrow at lower rates of interest than you’d get as an individual. They also have flexible ways to borrow – for example they might get an ordinary bank loan or, for split capital investment companies, issue different classes of share.

Not all investment companies use gearing, and most use relatively low levels of gearing.

The process of ending a company’s life. It normally involves selling off the company’s assets, paying off any creditors, and then returning anything left over to shareholders.

 

See wind up date.

A measure, expressed as a percentage of NAV, of the regular, recurring costs of running an investment company.

Buying shares on a regular basis to smooth out the ups and downs in the share price.

Pound-cost averaging can be a useful technique if you’re worried the stock market might fall in the near future. You invest over time instead of all in one go, so you end up buying more shares when the price is low and fewer when the price is high. Over time, this can help to smooth out some of the ups and downs in the share price.

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