Financial Terms related to Investment This document is part of the valuable contents available at www.ftpall.com, a free onlineglossary with more than five thousand financial and business terms. This document can be copied and distributed freely Find thousands of financial terms at www.ftpall.com respecting its original format. It is forbidden its transcription, translation or change on its format without authorization of its author or editor.INVESTMENTAlternative investments • Are usually investments other than mutual funds, certificates of deposit, or direct investments in equities and bonds. Some of these alternatives are: art, collectibles, commodities, commodity funds, commodity pools, derivatives, foreign exchange, hedge funds, oil and gas, precious metals, and real estate ventures.Association for investment management and research • The Association for Investment Management and Research (AIMR)s Performance Presentation Standards Implementation Committee is charged with the responsibility to interpret, revise and update the AIMR Performance Presentation Standards (AIMR-PPS(TM)) for portfolio performance presentations.Balanced investment strategy
www.ftpall.com 2|Page • A method of portfolio allocation and management aimed at balancing risk and return; a balanced portfolio may combine stocks, bonds, packaged products, and cash equivalents.Closed end investment company • An investment company that issues a fixed number of shares in an actively managed portfolio of securities. The shares may be of several classes; they are traded in the secondary marketplace, either on an exchange or over the counter. The market price of the shares is determined by supply and demand, and not by net Find thousands of financial terms at www.ftpall.com asset value. See also: Mutual Fund.Closed end investment company or fund • Is an investment vehicle that issues shares in a fashion similar to other corporations. The number of shares outstanding is relatively fixed unlike open end investment funds which tend to have variable shares outstanding. Closed End shares can trade at a premium or discount to the net asset value.Dividend reinvestment • Occurs when a dividend paying organization such as a corporation or mutual fund automatically reinvest the payable dividend into additional shares of that organization. There can be tax implications for this activity.Dividend reinvestment plan • Abbreviated DRP. Automatic reinvestment of shareholder dividends in more shares of a companys stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder. • Abbreviated DRIP or DRP. Plan offered by many corporations for the reinvestment
www.ftpall.com 3|Page of cash dividends by purchasing additional shares or fractional shares on the dividend payment date, occasionally at a discount from market price. Many DRIPs also allow the investment of additional cash from the shareholder, known as an Optional Cash Payment or Optional Cash Purchase (OCP). The DRIP is usually administered by the company without charges or only nominal fees to the participants, and many allow additional purchases of as little as $10. • Plans that enable shareholders to use dividends received on the firms shares to acquire additional full or fractional shares at no transaction (brokerage) cost. Find thousands of financial terms at www.ftpall.comExpected return on investment • The return one can expect to earn on an investment. See: capital asset pricing model.Foreign direct investment • FDI. The acquisition abroad of physical assets such as plant and equipment, with operating control residing in the parent corporation. • Abbreviated FDI. The transfer by a multinational firm of capital, managerial, and technical assets from its home country to a host country.Future investment opportunities • The options to identify additional, more valuable investment opportunities in the future that result from a current opportunity or operation.Guaranteed investment contract • Abbreviated GIC. A pure investment product in which a life company agrees, for a single premium, to pay the principal amount of a predetermined annual crediting (interest) rate over the life of the investment, all of which is paid at the maturity date.Guaranteed investment interest contract • Abbreviated GIC. Debt instrument sold in large denominations often bought for
www.ftpall.com 4|Page retirement plans. The word guaranteed refers to the interest rate paid on the GIC; the principal is at risk.Initial investment • The relevant cash outflow required now, at time zero, for a capital budgeting project.Investment account • Is an account at a financial institution which is held for long term investment or Find thousands of financial terms at www.ftpall.com capital purposes. This is opposed to the trading or inventory account.Investment adviser • (1) Any person who makes investment recommendations in return for a flat fee or percentage of assets managed. (2) For investment companies, the individual who has the day-to-day responsibility of investing the cash and securities held in the funds portfolio in accordance with the objectives stated in the funds prospectus.Investment analysts • Related: financial analystsInvestment bank • Financial intermediaries who perform a variety of services, including aiding in the sale of securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and institutional clients, and trading for their own accounts. Underwriters.Investment banker • A term for investment dealers when performing the underwriting function. • A firm that engages in the origination, underwriting, and distribution of new issues. • An institution in the business of raising capital for corporations and municipalities. An investment banker may not accept deposits or make commercial loans. See also:
www.ftpall.com 5|Page Commercial Bank; Investment Bank.Investment club • A group of people who meet periodically to discuss and implement investment strategies.Investment company • Refers to Open End Mutual Funds and Closed End Mutual Funds. It can also refer to specialized investment firms. Find thousands of financial terms at www.ftpall.comInvestment decisions • Decisions concerning the asset side of a firms balance sheet, such as the decision to offer a new product.Investment flows • Cash flows associated with purchase and sale of both fixed assets and business interests.Investment grade bonds • A bond that is assigned a rating in the top four categories by commercial credit rating companies. For example, S&P classifies investment grade bonds as BBB or higher, and Moodys classifies investment grade bonds as Ba or higher. Related: High-yield bond.Investment horizon • Is the actual or expected period that a financial position will be held. Some organizations and individuals use simple purchase-and-hold strategies, particularly for fixed income securities. For those parties, the investment horizon would be the time left to maturity. Other uses of the term are: day, short-term, intermediate-term, and long-term holdings.Investment income
www.ftpall.com 6|Page • The revenue from a portfolio of invested assets.Investment management • Also called portfolio management and money management, the process of managing money.Investment manager • Also called a portfolio manager and money manager, the individual who manages a portfolio of investments. Find thousands of financial terms at www.ftpall.comInvestment opportunities schedule ios • A ranking of investment possibilities from best (highest returns) to worst (lowest returns). The graph that plots project IRRs in descending order against required total dollar investment.Investment product line ipml • The line of required returns for investment projects as a function of beta (non diversifiable risk).Investment quality • Denotes high quality bonds. Investment quality means BBB or higher bond rating. Banks are not allowed to invest in "predominantly speculative" securities (below BBB ratings).Investment tax credit • Abbreviated ITC. An incentive for businesses in various regions of the country to purchase certain types of assets or undertake certain types of research and development activities; results in a direct reduction of federal taxes that would otherwise be payable. • Proportion of new capital investment that can be used to reduce a companys tax bill (abolished in 1986).
www.ftpall.com 7|PageInvestment trust • A closed-end fund regulated by the Investment Company Act of 1940. These funds have a fixed number of shares which are traded on the secondary markets similarly to corporate stocks. The market price may exceed the net asset value per share, in which case it is considered at a premium. When the market price falls below the NAV/share, it is at a discount. Many closed-end funds are of a specialized nature, with the portfolio representing a particular industry, country, etc. These funds are usually listed on US and foreign exchanges. Find thousands of financial terms at www.ftpall.com • Commonly known as a Closed-End Fund. Closed-end funds invest in other securities (like a Mutual Fund) but have a fixed number of shares and are traded similarly to stocks. The market price may exceed the Net Asset Value (NAV) per share, in which case the fund is selling at a Premium. When the market price falls below the NAV, the fund is selling at a Discount.Investment value • Related: straight value.Investments • As a discipline, the study of financial securities, such as stocks and bonds, from the investors viewpoint. This area deals with the firms financing decision, but from the other side of the transaction.Legal investments • Investments that a regulated entity is permitted to make under the rules and regulations that govern its investing.Local government investment pool lgip • The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment, I.E., LAIF.
www.ftpall.com 8|PageMutually exclusive investment decisions • Investment decisions in which the acceptance of a project precludes the acceptance of one or more alternative projects.Net investment • Gross, or total, investment minus depreciation.Net present value of future investments • The present value of the total sum of NPVs expected to result from all of the firms Find thousands of financial terms at www.ftpall.com future investments.Open end investment company • Is a mutual fund that offers and redeems its shares on a daily basis. These funds can be no-load funds which do not charge fees for the initial investment or redemption. These funds can be load funds which do charge fees for investment or redemption according to a published schedule. Compare to Closed End Fund.Open ended investment company • See Mutual Fund.Passive investment management • Buying a well-diversified portfolio to represent a broad-based market index without attempting to search out mispriced securities.Passive investment strategy • See: passive management.Real estate investment trust • Abbreviated REIT. REITs sell like stocks on the major exchanges, and invest in real estate either directly through properties or mortgages. REITs receive special tax considerations, and typically offer investors high yields as well as a highly liquid
www.ftpall.com 9|Page method of investing in real estate. • Abbreviated REIT. A pool of real properties marketed to individual investors, similar to a closed-end mutual fund. • Is a special structure which holds real properties. These properties can be apartments, shopping malls, office buildings or other acceptable real assets. The trust must distribute 95 percent of its income to the shareholders in order to qualify for special tax treatment. • Real estate investment trust, which is similar to a closed-end mutual fund. REITs Find thousands of financial terms at www.ftpall.com invest in real estate or loans secured by real estate and issue shares in such investments.Real estate mortgage investment conduit • Is a vehicle to minimize double taxation of income from a pooling of mortgages.Reinvestment • Using dividends, interest, and capital gains earned in a mutual fund investment to purchase additional shares, rather than receiving the distributions in cash. In the case of stocks: using dividends to purchase additional shares instead of receiving payments in cash.Reinvestment rate • (1) The rate at which an investor assumes interest payments made on a debt security can be reinvested over the life of that security. (2) Also, the rate at which funds from a maturity or sale of a security can be reinvested. Often used in comparison to give-up yield. • The rate at which an investor assumes interest payments made on a debt security can be reinvested over the life of that security.Reinvestment risk
www.ftpall.com 10 | P a g e • Is the situation whereby prepaid principal amounts will be reinvested in lower yielding securities. • The risk that proceeds received in the future will have to be reinvested at a lower potential interest rate.Remic real estate mortgage investment conduit • A pass-through tax entity that can hold mortgages secured by any type of real property and issue multiple classes of ownership interests to investors in the form of pass-through certificates, bonds, or other legal forms. A financing vehicle created Find thousands of financial terms at www.ftpall.com under the Tax Reform Act of 1986.Return on investment • Abbreviated ROI. The profit or loss resulting from a security transaction, often expressed as an annual percentage rate. • Abbreviated ROI. Generally, book income as a proportion of net book value.Short term investment services • Services that assist firms in making short-term investments.Underinvestment problem • The mirror image of the asset substitution problem, wherein stockholders refuse to invest in low-risk assets to avoid shifting wealth from themselves to the debt holders.Unit investment trust • Money invested in a portfolio whose composition is fixed for the life of the fund. Shares in a unit trust are called redeemable trust certificates, and they are sold at a premium above net asset value. • Is an investment vehicle which is funded at the beginning and once investments are acquired acts like a liquidating investment. For example, corporate bonds, sovereign bonds, or mortgage backed securities would be acquired. The interest,
www.ftpall.com 11 | P a g e principal repayments and accelerated payments would be passed on to the investors. These funds would not be retained by the fund for further investment. It is more nearly analogous to a closed-end fund and different from an open-ended fund.Zero investment portfolio • A portfolio of zero net value established by buying and shorting component securities, usually in the context of an arbitrage strategy. Find thousands of financial terms at www.ftpall.com