Share or unit of an investment fund for which the profit that is earned by the fund and that would accrue to the holder of that share or unit is not paid to him as a dividend, but reinvested in the fund.
Active fund management
Investment strategy that involves making a targeted selection, based on in-depth research and analysis, of assets in which an investment fund invests the investors' money. An "active fund" is opposed to passively managed funds that simply replicate their benchmark, generally a stock market index, by investing exclusively in all the securities that make up the index.
Refers to the different types of goods and financial instruments in which an investor can invest: money market instruments, equities, bonds, precious metals, commodities, real estate...
Valuables (cash, securities, real estate, etc.) that constitute the wealth of an individual, a company or an investment fund.
Investment fund which generally seeks both capital growth and steady income by investing in a portfolio of equities, bonds and money market instruments.
Currency in which the price of the units and shares of an investment fund or sub-fund is expressed and in which the assets of the fund or sub-fund are valued.
Market in which prices fall over a longer period of time. The term is primarily used for the stock exchange. The opposite of a bull market.
In finance, the term benchmark refers to a reference value that allows to measure the performance of an investment. For example, the benchmark for an equity investment is the stock index which represents the stock market on which that equity investment was made.
Designation for globally recognized companies that are particularly well established and solid and offer the investor a certain degree of stability even in an uncertain economic environment. The term is also used to designate the stocks of such companies.
Debt security issued by governments, local authorities, public institutions or any type of company to lend money from investors. The issuer undertakes to pay fixed or variable interest to subscribers and to repay the borrowed amount after a fixed period of time (when the bond "matures"). Bonds are generally listed and traded on an exchange.
Investment fund investing in debt securities.
Market in which prices are rising over a longer period of time. The term is primarily used for the stock exchange. The opposite of a bear market.
Money that is available for an investment or that has been invested. If the value of the investment object increases over time, the investor can realize a capital gain by selling the investment. However, if the value of the investment object decreases over time, the investor suffers a capital loss when selling his investment.
Increase in the value of an asset.
Investment fund that does not distribute profits to its shareholders in the form of dividends, but invests those profits in the same way as contributions made by investors.
An investment fund raising a fixed amount of capital by issuing a fixed number of units or shares for a limited period of time as part of a public purchase offer. Once the target capital has been reached, the fund is closed and does not accept any new investors. In contrast to open-end funds, investors cannot have their units or shares redeemed by the fund at any time. Equities and units of closed-end funds, on the other hand, are traded on the stock exchange in the same way as ordinary securities, and their price is thus determined by supply and demand.
Pooling of the capital of a more or less significant number of investors, usually through an investment fund or "undertaking for collective investment – UCI ", with the aim of achieving economies of scale and thereby reducing transaction costs while at the same time reducing investment risks through a broad diversification of investments.
Bond issued by a company to which is attached a conversion right. This gives its holder the right, but not the obligation, to convert the bond into shares of that company at a predetermined conversion parity over a specified period of time.
Bond issued by a company.
Commission de surveillance du secteur financier, the supervisory and regulatory authority of the Luxembourg financial sector.
Under Luxembourg law, every investment fund is legally obliged to appoint a custodian, also called depositary. This is a regulated entity, usually a financial institution, that ensures the safekeeping of the fund's assets, whether it is investors' money that has not yet been invested by the fund or the shares, bonds, derivatives and other financial instruments in which the fund has invested. Depending on the type of fund, the Custodian may also have a more or less extensive control and supervisory function.
Generic term for any security that represents the obligation of its issuer to repay borrowed money to the holder at the end of a specified period, with or without interest. Bonds, commercial papers and treasury bills for example are debt securities.
Under Luxembourg law, every investment fund is legally obliged to appoint a depositary, also called custodian. This is a regulated entity, usually a financial institution, that ensures the safekeeping of the fund's assets, whether it is investors' money that has not yet been invested by the fund or the equities, bonds, derivatives and other financial instruments in which the fund has invested. Depending on the type of fund, the depositary may also have a more or less extensive control and supervisory function.
In finance, a derivative is a security whose value depends on or is derived from one or more underlying asset(s). It takes the form of a contract between two or more parties and relates to the underlying asset(s). These assets, whose price fluctuations affect the value of the derivative, may be equities, bonds, commodities, currencies, interest rates or stock market indices. Derivatives can be used to hedge against adverse price fluctuations of the underlying asset, to speculate on a price increase or decrease of the underlying asset or to take advantage of price differences between the derivative and the underlying asset. Derivatives can be traded either over-the-counter or on an organised market. In the latter case, the derivatives are standardized.
Investment fund that does not reinvest its profits but distributes them to its shareholders in the form of a dividend.
Distribution of profits
Distribution of profits made by a company or investment fund to its share- or unit holders in the form of dividends.
Share or unit of an investment fund in which the profit realised by the fund, to which the investor is entitled, is paid out to the investor in the form of a dividend and is not reinvested in the fund.
Technique for reducing investment risks. The funds to be invested are spread over a wide range of different assets (money market instruments, equities, bonds, real estate, etc.), currencies, economic sectors or geographical regions. The basic idea is to structure the investment portfolio in such a way that a loss in value of one asset is compensated by an increase in value of another asset.
Portion of the profits that a company or investment fund distributes to its shareholders or unitholders.
Share in a company that regularly distributes a substantial portion of its profits to its shareholders in the form of dividends.
Domiciliary and administrative agent
Actor of the investment fund industry. The domiciliary and administrative agent provides the investment fund with a home address for correspondence and ensures the management of the fund's social life by assisting it in particular in complying with its legal and supervisory obligations (organising general meetings and Boards of Directors, legal publications, preparing documents and prospectuses, etc.).
Dow Jones® Industrial Average (DJIA)
The oldest and most famous stock market index, created by Charles Dow in 1896. It represents the shares of the 30 largest companies listed on the New York Stock Exchange. "The Dow" is a price-weighted index, which means that the more expensive stocks have more influence on the index than the cheaper ones. It is calculated continuously and in real time throughout the trading days.
Emerging Markets Fund
Investment fund investing in emerging markets, i. e. countries with a lower Gross Domestic Product (GDP) per capita than industrialised countries, but with high growth potential.
Investment fund that not only selects its investments on the basis of performance criteria, but also takes into account the social, environmental and governance aspects of its investments.
Market on which securities, derivatives or commodities are traded. The best-known exchanges are the New York Stock Exchange (NYSE), the NASDAQ in New York and the London Stock Exchange for securities, as well as the Chicago Mercantile Exchange for commodities.
Exchange Traded Fund (ETF)
Investment fund listed and traded on a stock exchange. An ETF is characterised by the fact that it can be bought and sold at any time during trading hours on the stock exchange and that its price is determined not only by the net asset value of its shares and units, but also by the supply and demand from investors. The majority of ETFs are index funds that replicate a specific stock market index.
Acronym for Fonds Commun de Placement, one of the most common legal forms of investment funds in Luxembourg. The FCP is an undivided co-ownership without legal personality, the rights of which are represented by units and which must be managed by a management company. The fund's assets are separated from those of the management company, so that in the event of financial difficulties of the management company, its creditors do not have access to the assets managed by the fund, which provides protection for investors.
Investment fund that invests all of its assets in one single investment fund, called the "master fund". The feeder fund acts, to some extent, as the master fund's commercial agent on a particular local market and adapts its conditions to the specific characteristics of that market.
Security such as a bond and money market instrument, which makes payments to its holder (usually in the form of interest) at regular intervals over a given period of time and whose amount is known in advance. At the end of this period, the nominal value of the security is repaid to the investor.
Fee charged at the time of purchase of shares or units in an investment fund. Also known as subscription fee, this fee is usually used to reimburse the services of the fund's distributors. As with other costs and fees, the front-end load must also be disclosed in the fund's prospectus.
Person deciding which assets to buy or sell on behalf of the investment fund in accordance with the fund’s investment policy set out in its prospectus.
Also known as a fund sponsor or fund initiator, the fund promoter is the person, group of persons or institution taking the initiative to set up an investment fund and determining its terms and conditions.
Type of contract – known as ‘future’ – with which two anonymous parties undertake to buy or sell and deliver a standardised quantity of a financial instrument (stocks, bonds, etc.) or commodity (wheat, oil, etc.) at a later date and at a predetermined price. As with other derivatives, futures can be traded on regulated stock exchanges such as EUREX, the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBoT) or the London International Financial Futures Exchange (LIFFE), or over-the-counter.
Share of a company with strong growth potential. Such companies develop faster than the average of their industry, may not yet make a profit, and if they do, they often invests that profit to finance their own expansion.
Investment fund that offers investors the guarantee that their invested capital will be at least fully repaid after a certain investment period.
Transaction designed to protect against an economic or financial risk. A certain level of risk coverage can be achieved, for example, with derivatives such as futures or options.
A value calculated regularly to measure changes in the prices of a basket of goods and services (consumer price index) or financial instruments (stock exchange index) on a given market.
Also called Tracker Fund. An investment fund whose investment strategy is to replicate an index, for example the index of a stock or bond market, as closely as possible. Many Exchange Traded Funds (ETFs) are index funds.
Inflation refers to the general and sustained rise in the prices of goods and services in an economy.
The inflation rate, expressed as a percentage, reflects the change in consumer prices of a representative basket of goods and services in an economy over a given period (usually one year).
Person or company whose remunerated activity consists of making investment recommendations.
Company whose business consists of making and managing investments on behalf of its clients or shareholders. Certain types of corporate investment funds that are registered as companies (such as the Luxembourg Société d' investissement à capital variable - SICAV and the Société d' investissement à capital fixe - SICAF) are investment companies.
Also called ‚unit trust’. A generic term for any mutual fund or ‘undertaking for collective investment’ that pools the money of investors in order to invest it according to its investment strategy and objectives. Legally, this may be a company, a partnership or a contractual agreement.
Each investment fund must adopt an investment policy to which it must adhere when making investment decisions. The investment policy must be described in detail in the fund's prospectus to enable the potential investor to assess whether or not the fund is suitable for him or her. It specifies, among other things, in which asset classes the fund is allowed to invest and to what extent, to what extent the fund may use derivatives and, increasingly, whether the fund takes into account social, ecological and governance aspects when making investment decisions.
Collection of investments belonging to a person, group or investment fund.
Generic term for the probability that an investor suffers a loss or does not achieve the expected return on his investment.
Investment fund whose investment policy respects the principles of Sharia law and is therefore suitable for Muslim investors.
Price at which a share or unit of a company or an investment fund is issued.
The issue prospectus, or simply "the prospectus", of an investment fund is the key legal document that provides detailed information about the fund's investment objectives and policy, how it operates, its cost structure and the allocation of its profits.
Key Investor Information Document – KIID
Standardised document introduced at European level in July 2011. It must give investors wishing to invest their savings in an investment fund a concise, clear, accurate, non-deceptive and plain language overview of the fund's main features in order to enable them to make an informed investment decision.
In finance, the term leverage is used primarily in the valuation of warrants and options. It indicates the extent to which the price of the warrant or option reacts to a change in the price of the underlying asset. For example, if the leverage of a stock option is 4, this means that the price of the option varies by 4% if the price of the underlying stock varies by 1%.
In finance, the leverage effect describes a situation or product in which a minimal change to a variable causes significant fluctuations in the result.
Ease with which an asset can be converted into cash at a reasonable price. Securities (shares, bonds...) traded on a stock exchange as well as open-ended investment funds offer high liquidity, while real estate is a rather illiquid investment.
Company whose shares are listed and traded on a stock exchange.
Company that organises and manages an investment fund.
Fee charged by the manager or management company of an investment fund to compensate the manager or management company for performing and managing the fund's investments.
Value calculated to measure the size of a company whose shares are traded on a stock exchange. The market capitalisation is obtained by multiplying the current price of the company's shares by the number of its outstanding shares.
Securities dealer who provides prices for the purchase and sale of specific securities on a continuous basis throughout the entire opening hours of a stock exchange and who undertakes to buy/sell these securities at these prices. Market makers, usually large financial institutions, thus contribute to the liquidity of the financial markets.
Date on which the nominal amount of a debt obligation is to be repaid to the holder of this debt obligation. A maturity date applies only to financial assets with a limited life span (bonds, loans, futures, etc.).
Investment fund that is liquidated after a predetermined term.
Merger of funds
Merger of two or more investment funds into one single fund. Investment funds are sometimes merged if their investment policies are similar and their activities overlap. The pooling of assets is intended to make fund management more efficient.
Acronym for the European Union's ‘Markets in Financial Instruments Directive’, which aims to harmonise financial services markets in the European Union and provide better investor protection.
Money market fund
Investment fund investing in money market instruments with high liquidity (bank deposits, certificates of deposit, treasury bills, etc.).
Multiple compartment fund
Investment fund with a more or less large number of sub-funds or compartments within one single legal entity. These sub-funds are strictly separated from each other and each one has its own investment policy, its own investors, etc. Their operation is no different from that of conventional funds. Many umbrella funds allow their investors to migrate from one sub-fund to another at a reduced fee.
The American equivalent of an open-ended investment fund. The term is mainly used for retail funds.
Net Asset Value (NAV)
The value of all the assets of an investment fund less its liabilities. The NAV per share/unit is used as the basis for calculating the prices at which the investor can acquire or redeem shares or units of the investment fund. The NAV per share/unit is calculated by dividing the fund’s total NAV by the number of outstanding shares or units of the fund. The frequency of the NAV calculation depends on the type of fund and the respective provisions in its prospectus.
Total assets of an investment fund less its debts.
No load fund
Investment fund sold without a front-end load (or subscription fee).
Open-ended investment fund
Also called mutual fund or unit trust. An investment fund that allows investors at any time to buy units and shares of the fund or to withdraw their investments by returning their units or shares to the fund. The fund's capital and the number of shares and units in circulation vary accordingly.
A financial contract that grants the right (but does not impose an obligation) on the holder of the option to buy (in the case of a call option) or to sell (in the case of a put option) a specific quantity of securities or commodities for a fixed period of time (US options) or at the end of that period (European options) at a predetermined price. An option is a derivative that is listed and traded on a Stock Exchange. Options are used by buyers to protect themselves against price fluctuations of the underlying securities or commodities, but also for purely speculative purposes.
Passive fund management
Investment strategy that replicates a specific stock market index by investing exclusively in all of the securities that make up the index. A passively managed investment fund does not research the quality of securities before investing. Its only and unique selection criterion is the fact that a security belongs to the index it replicates. The aim of this investment strategy is to achieve a performance close to that of the index, which serves as a benchmark for measuring the fund’s performance.
Change in the value of an investment or portfolio over a given period. In order to assess whether the performance of an investment is good or bad, it is generally compared with a benchmark that reflects the overall development of the market on which the investment is made. The performance of the BMW stock or of an investment fund investing in German equities for example is thus compared with the DAX, the benchmark index of the Frankfurt Stock Exchange, which reflects the price performance of the 30 largest German companies listed on the Frankfurt Stock Exchange and is considered to represent the general development of the German equity market.
A contingency fee that is added to an investment fund's annual management fee if its performance exceeds that of a specific benchmark index or a trigger specified in its issue prospectus. This type of fee is common in the hedge fund industry, but is increasingly being applied by retail funds as well.
Portfolio turnover rate
The portfolio turnover rate indicates how often the manager has replaced the values in the fund portfolio, i. e. the volume of transactions executed by the manager over a period of one year. This rate is an indicator of a manager's management style: a high ratio means that the manager is more active, a low rate means that he is following a long-term investment strategy. As each purchase and sale of securities by the fund involves transaction costs (which are not included in the calculation of the fund's total cost ratio), a high fluctuation rate has a major impact on the total costs borne by the investor.
The price-to-earnings ratio – obtained by dividing the price of a share by the net earnings per share – is used to assess whether a company's share is relatively expensive or cheap compared to the historical prices of the share or with shares of other companies in the same economic sector. While the calculation of this ratio is easy, its interpretation often leads to widely divergent conclusions.
Interest rate fixed by the Central Bank or the monetary authorities of a country. The loan and savings interest rates of financial institutions are based on this base rate.
Real estate fund
Investment fund investing in real estate.
Fee which may be charged by an investment fund at the time when an investor intends to withdraw his invested money from the fund and asks the fund to repurchase his units or shares. Usually expressed as a percentage of the unit value, the redemption fee is calculated on the basis of the Net Asset Value (NAV).
One way of using the profits of an investment fund, which consists of keeping the profits generated in the fund and investing them in the same way as the contributions made by investors instead of distributing them to investors as a dividend.
Gain or loss generated by an investment over a given period, expressed as a percentage of the amount invested. The return consists of the increase in value – or loss in value – of the investment plus the income (such as dividends or interests) generated by it.
Investment strategy in which identical amounts of money are invested in the acquisition of financial assets at regular intervals over an extended period of time. In the case of a savings plan based on investment funds, the investor thus buys fewer units or shares if their price is high, and buys more if their price is low. By doing so, he benefits from an attractive average purchase price in the long term. A savings plan is opposed to a single investment.
In economics and finance, the term sector refers to a more or less broad set of companies with similar activities. The three main sectors of an economy are the primary sector (agriculture), the secondary sector (production of goods) and the tertiary sector (services). These three sectors are divided into a multitude of more specific sectors such as the automotive sector, banking, IT, healthcare, etc.
Investment fund that focuses its investments on a specific sector of the economy.
Generic term for financial instruments such as shares and bonds.
Total amount of money and material assets that are made available to the company when it is founded or when capital increases are made at a later date in exchange for shares or share certificates.
Investment funds may issue different classes of units or shares which differ, for example, in terms of their reference currency, the amount and type of fees and commissions charged to the investor or the allocation of the profits made by the fund (distribution / reinvestment). The different share classes allow the provider of an investment fund to adapt its product to specific types of customers and/or markets.
Holder of shares in a company or an investment fund.
Acronym for "Société d'investissement à capital variable" (Investment company with variable capital), one of the main legal forms of investment funds, particularly in Luxembourg. As the name implies, the capital of a SICAV increases or decreases permanently according to the payments and withdrawals made by investors.
Document summarising the content of the full prospectus of an investment fund. Since 2011, it has been replaced by the "Key Information Document" (KIID), which provides a two-page overview of the fund's main features.
SRI fund (socially responsible investment fund)
Investment fund that takes into account social, environmental or governance criteria when selecting investments.
Also known as share or equity. Type of security representing the partial ownership of a company incorporated as a public limited company. A company's shares may be listed and traded on a stock exchange. The initial price of a company's shares is set by the company itself. On the stock exchange, their price increases or decreases depending on supply and demand from investors, who in turn depend on the company's actual results and future prospects.
Stock market index
A calculated value that reflects the price level of the most important companies listed on a particular stock exchange. It serves as a benchmark against which the performance of securities, asset portfolios or investment funds can be measured and compared. The best-known indices are the American Dow Jones Industrial Average (the "Dow"), the British Financial Times Stock Exchange (FTSE) and the Japanese Nikkei 225.
Fee charged at the time of purchase of shares or units in an investment fund. Also known as front-end load, this fee is usually used to reimburse the services of the fund's distributors. As with other costs and fees, the subscription fee must be disclosed in the fund's prospectus.
Total expense ratio (TER)
The Total Expense Ratio (TER) of an investment fund is expressed as a percentage of its total assets and provides information on all fees and expenses related to the administration and management of the fund (management fees, legal fees, audit fees, etc.), with the exception of transaction costs generated by the purchase and sale of assets. This ratio is important for the investor since the fees and commissions in question are debited from the fund's assets and therefore reduce the fund's return.
Also called Index Fund. An investment fund whose investment strategy is to replicate an index, for example the index of a stock or bond market, as closely as possible. Many Exchange Traded Funds (ETFs) are tracker funds.
Transfer agent and Registrar
Actor of the investment fund industry. The transfer agent and registrar acts as an intermediary between the investors, the distributors of an investment fund and the investment fund itself. As a regulated company, the transfer agent and registrar manages the subscription and redemption orders for shares and units by investors and keeps the register of the fund's shareholders.
Acronym for “undertaking for collective investment”. Investment vehicle to pool and to invest the capital of a more or less significant number of investors with the aim of achieving economies of scale and thereby reducing transaction costs while at the same time reducing investment risks through a broad diversification of investments.
Acronym for 'undertaking for collective investment in transferable securities'. This type of investment fund was created in 1985 by a European Union Directive, the aim of which was to create a single European market for these investment vehicles and to provide a high level of investor protection. A UCITS is a strictly regulated and monitored investment vehicle.
Investment fund investing in other investment funds.
Variable Income Security
Security whose payments to the investor are not compulsory and therefore uncertain. This is particularly the case for equities, where the payment of dividends depends on the financial results of the companies in question.
Venture capital fund
Investment fund that invests in companies that have been newly established or are still at an early stage of their development.
Indicator of the extent to which the value of an investment may increase or decrease over a given period of time.