10 Scary finance terms explained for first-time investors

10 Scary finance terms explained for first-time investors

Investing for the first time can feel quite daunting. Trying to figure out where and how is best to invest for you, let alone decoding industry jargon and confusing terms and conditions. To take some of the mystery out of investments, here are 10 scary finance terms explained for first-time investors.

1) Compounded interest

Compound interest is when interest is earned not only on the initial investment, but also on any interest earned since the account was opened. Effectively it is interest earned on top of interest and therefore “compounds”.

2) Capital protection

Capital is a finance term for ‘money’ so when an investment product offers ‘capital protection’ it means that your initial investment (your money) is protected from any loss on the invested amount.

It is a guarantee that you won’t get back less than what you put in.

3) Annual management charge

Annual management charge (AMC) is a fee that is paid to providers like Unity Mutual in exchange for a one year investment.

4) Investment Bond

Investment bonds will vary by provider, but essentially an investment bond is a lump-sum investment product offered by companies.  It combines investment with a small life insurance component.

Some investment bonds come with fixed rates and fixed terms, meaning your money is invested for a set period—typically between 1 to 10 years—at a predetermined rate of return.

5) ISA

An ISA is an Individual Savings Account.  It’s a tax-efficient way to save or invest money as a UK resident. The main benefit of an ISA is that any interest earned, dividends received, or capital gains made within the account are completely tax-free.

Each tax year, there is a set ISA allowance, which is the maximum amount you can contribute across all your ISAs—currently £20,000.

There are several types of ISAs, including:

• Cash ISAs
• Stocks and Shares ISAs
• Lifetime ISAs
• and Innovative Finance ISAs

Each ISA type offers different features and benefits depending on whether you want to save, invest, or save for retirement or your first home.

6) Guaranteed return

A guaranteed return means that you are assured a specific, fixed rate of interest or growth on your investment over a set period of time. This means you know exactly how much you'll earn and when, regardless of stock market fluctuations.  This provides you with the certainty for your investment during that fixed term.

Unity Mutual’s Guaranteed Investment Bond for example is a 2 or 5 year investment that gives you the peace of mind knowing exactly what interest you’ll earn whilst your initial investment is protected.

7) Equity Fund

An Equity Fund is a fund that invests primarily in stocks and shares. When you invest with Unity Mutual, we will invest your money in stocks and shares on your behalf.

8) Valuation

Valuation means working out what your investment is currently worth. For example, when you invest in a Stocks and Shares Flexible ISA, you're buying units in a fund, and the number of units you receive depends on the ‘offer price’ at the time.

To find the current value of your investment, you multiply the number of units you hold by the bid price, which is what you would get if you sold them today.

For example, if you own 100 units and the current bid price is £2, your investment is valued at £200.

Find out more about our Fund Prices here.

9) Risk indicator

The risk indicator is a tool that shows how much risk the investment carries and the chance of losing money. Unity Mutual measures their product risk on a scale of one to seven, taking into account where the money is invested and the current guaranteed return. 

A useful guide, but not a guarantee, when investing in stocks and shares you should always be aware that your capital is at risk.

10) Reduction in Yield

The Reduction in Yield (RIY) shows what impact the total costs you pay will have on the investment return you might get. The total costs take into account one-off, ongoing and incidental costs.  In Unity Mutual’s case, we charge an Annual Management Charge on our stocks and shares products (e.g. Flexible ISA and Junior ISA) to cover the cost of managing the fund in which they are invested.

If you would like to find out more about investing head over to our adult savings and insurance page or give us a call on 0161 214 4650 to speak to one of our friendly members of staff if you need anything explaining further.