Glossary

A

  • Accumulation plan - An arrangement that enables an investor to purchase a set dollar amount of mutual fund units on a regular schedule.

  • Adjusted cost base - The price you paid for your investment plus any adjustments, such as distributions.

  • Annuity - A sum of money that you give to a company to invest so that the money will grow. The company provides you with regular payments going forward, for either a specific amount of time or for life.

  • Assets - What a firm or individual owns.

B

  • Back-end load - A sales charge levied when mutual fund units are redeemed.

  • Balanced fund - A mutual fund that has an investment policy of balancing its portfolio by including bonds and shares in varying proportions based on the fund’s investment policies.

  • Bear market - A period when the value of the securities market, or a sector of the securities market, is in general decline.

  • Benchmark - Information that helps you compare the performance of different investment products. Benchmarks cannot be compared directly to your personal or target rates of return because they do not take costs into account.

  • Beneficiary - A person who receives or gains items as part of a trust, will, etc.

  • Beta - A statistical term used to illustrate the relationship of the price of an individual security or mutual fund unit to similar securities or financial market indexes.

  • Blue chip - A term to describe high-grade equity securities.

  • Bond - A long-term debt instrument with the promise to pay a specified amount of interest and to return the principal amount on a specified maturity date.

  • Bond fund - An investment fund that holds mostly bonds.

  • Book value - 1) The value of net assets that belong to a company’s shareholders, as stated on the balance sheet of the company. 2) The price you paid for your investment plus any adjustments, such as distributions, that have been reinvested to buy more units.

  • Broker - An agent who executes investors’ orders to buy and sell securities, commodities or other property. A commission is generally charged by the agent to the investor for this service.

  • Budget apps - Online tools to help people manage their income and expenses in order to save for the future. Budget apps can typically be accessed through your computer or smartphone and a quick online search can help you find an app that best suits your needs.

  • Bull market - A period when the value of the securities market, or a sector of the securities market, is generally rising.

  • Buying on margin - Purchasing a security partly with borrowed money.

C

  • Callable securities - Preferred shares or bonds that give the issuing corporation an option (or obligation) to repurchase securities at a stated price. These are also known as redeemable shares.

  • Capital - Generally, the money or property used in a business. The term is also used to apply to cash in reserve, savings or other property of value.

  • Capital gains - An increase in the value of a capital asset (such as an investment) so that it is worth more than the purchase price. The gain is realized when the asset is sold.

  • Capital market - The financial market for buying and selling securities, such as stocks and bonds.

  • Closed-end fund - A fund company that issues a fixed number of shares. Its shares are bought and sold on stock exchanges or the over-the-counter market but are not redeemable.

  • Closing market value - The market value of your investment at the end of the period referred to on your statement.

  • Common stock - A security representing ownership of a corporation’s assets. Voting rights are normally accorded to holders of common stock.

  • Compound interest - Money that you earn on interest from a previous period. For example, if you invest $100 at an annual interest rate of 4%, it will grow by $4 to $104 after one year. In the next year, at 4%, it will grow to $108.16. The extra 16 cents is interest earned on the previous interest. It might not seem like much, but the compounding increases each year and becomes quite significant over time.

  • Compounding - The process by which income is earned on income that has previously been earned. The end value of the investment includes both the original amount invested and the reinvested income.

  • Consumer Price Index (CPI) - A statistical device that measures the change in the cost of living for consumers. It is used to illustrate the percentage that prices rise or fall or the amount of inflation that has taken place.

  • Contribution room - An amount that you can contribute to your RRSP in a given year. If you need to withdraw money from your RRSP early, you will lose the contribution room that you used to put the money in originally.

  • Contributions - The amount of money you have placed in an investment fund. Also referred to as purchases.

  • Coupon rate - The annual interest rate of a bond.

  • Credit reporting agencies - Organizations that keep a record of how often you pay your bills. If your credit history is poor, it will be difficult for you to borrow money in the future. There are two major credit reporting agencies in Canada: Equifax Canada and TransUnion Canada. To obtain a copy of your credit file for free, contact the agencies’ websites.

  • Current yield - The annual rate of return that an investor purchasing a security at its market price would realize. This is the annual income from a security divided by the current price of the security. It is also known as the return on investment.

  • Custodian - A financial institution, usually a bank or trust company, that holds a mutual fund’s securities and cash in safekeeping.

D

  • Dealer firm - A company where financial advisors are registered. Dealer firms provide services to investors directly or through an advisor. Services include understanding clients’ financial needs, buying and selling units of investment funds for clients based on their needs, providing account statements and other information, ensuring advisors comply with government rules.

  • Decumulation - The process through which retirees manage and spend their income during their retirement years.

  • Deferral - A form of tax sheltering that results from an investment that offers deductions during the investor’s high-income years and/or postpones capital gains or other income until after retirement or to another period when the income level is expected to change. A Registered Retirement Savings Plan (RRSP) is an example of this.

  • Deferred sales charge (DSC) - For some funds, the investor’s full deposit is sent to the investment fund manager. Upon receipt, the manager pays a commission to the dealer firm. When the investor withdraws his/her money out of the fund, the investor might pay a deferred sales charge to the investment fund manager for the commission that the dealer firm received. Deferred sales charges usually decline to zero after a specific number of years.

  • Defined benefit pension plan - A registered pension plan that guarantees a specific income at retirement, based on earnings and the number of years worked.

  • Defined contribution pension plan - a registered pension plan that does not promise an employee a specified benefit upon retirement. Benefits depend on the performance of investments made with contributions to the plan.

  • Distributions - Payments to investors by a mutual fund from income or from profit realized from sales of securities.

  • Diversification - The investment in a number of different securities. This reduces the risks inherent in investing. Diversification may be among types of securities, companies, industries or geographic locations.

  • Dividend - A payment made by a company to its shareholders from the company’s profits. For common shares, the dividend varies with the fortunes of the company and the amount of cash on hand. It may be omitted if business is poor or the directors withhold earnings to invest in plant and equipment.

  • Dividend fund - A mutual fund that invests in common and preferred shares of senior Canadian corporations with a history of regular dividend payments at above average rates.

  • Dividend tax credit - An income tax credit available to investors who earn dividend income through investments in the shares of Canadian corporations.

E

  • Emerging market - An economy (usually of a country) that is growing rapidly and becoming more advanced, which might make it an attractive place to invest.

  • Equity - The net worth of a company. This represents the ownership interest of the shareholders (common and preferred) of a company. For this reason, shares are often known as equities.

  • Equity fund - A mutual fund whose portfolio consists primarily of common stocks.

  • Executor - A person or company chosen by a person to fulfill the instructions in his/her will.

F

  • Face value - The principal amount, or value at maturity, of a debt obligation. Also known as the par value or denomination.

  • Fair market value - The price a willing buyer would pay a willing seller if neither was under any compulsion to buy or sell. The standard at which property is valued for a deemed disposition.

  • Fiduciary - An individual or institution occupying a position of trust. An executor, administrator or trustee.

  • Financial advisor - A person who provides financial advice or guidance to clients to help them reach their financial goals.

  • Financial planner - A person who helps clients meet their long-term financial objectives by analyzing the client’s status and setting a program to achieve that client’s goals.

  • Fixed dollar withdrawal plan - A plan that provides the mutual fund investor with fixed-dollar payments at specified intervals, usually monthly or quarterly.

  • Fixed income investments - Investments that generate a fixed amount of income that does not vary over the life of the investment.

  • Fixed-period withdrawal plan - A plan through which the mutual fund investor’s holdings are fully depleted through regular withdrawals over a set period of time. A specific amount of capital, together with accrued income, is systematically exhausted.

  • Front-end load - A sales charge levied on the purchase of mutual fund units.

  • Fund Facts - A document that fund managers are required to provide for each mutual fund that they create. The purpose of Fund Facts is to make it easier for investors to find and use key information about individual mutual funds. Each Fund Facts is in plain language, no more than two pages double-sided and highlights key information for investors, including past performance, risks and the costs of investing in the mutual fund. Dealers must provide Fund Facts to their clients before the client invests in the fund.

  • Fund manager - A company that oversees securities. The fund manager oversees the operation of investment funds, including deciding which securities to purchase, and in what quantities, and when to buy and sell the securities. These decisions are based on the stated objective and strategy of the fund. An investment fund offers investors a wider selection of investment opportunities, management expertise and lower investment fees than investors could access on their own.

  • Fund of funds - A mutual fund that invests in other mutual funds. The investor costs are contained in the Management Expense Ratio (MER) on the fund that the investor owns directly; s/he does not pay the aggregate of all MERs in underlying funds. This is in accordance with Section 15.2 of National Instrument 81-106: Investment Fund Continuous Disclosure, which is a specific rule on the calculation of the MER for a fund that holds funds.

G

  • Growth stocks - Shares of companies whose earnings are expected to increase at an above-average rate.

  • Guaranteed investment certificates (GICs) - Deposit instruments paying a predetermined rate of interest for a specified term, available from banks, trust companies and other financial institutions.

I

  • Identity theft - A type of fraud that a person commits by using another person’s identifying information (such as birthdate, social insurance number, address or credit card number) to borrow money or get other benefits in the other person’s name. It is important to protect your personal information because If someone steals your identity and borrows money, you could be responsible for repaying the debt and it could affect your ability to borrow money in the future. You will experience significant inconvenience in time and potentially money to obtain new identification, update your records, and deal with inquiries from third parties.

  • Income funds - Mutual funds that invest primarily in fixed-income securities such as bonds, mortgages and preferred shares. Their primary objective is to produce income for investors while preserving capital.

  • Index fund - A mutual fund that matches its portfolio to that of a specific financial market index, with the objective of duplicating the general performance of the market in which it invests.

  • Inflation - A condition of increasing prices. In Canada, inflation is generally measured by the Consumer Price Index (CPI).

  • Interest - Payments made by a borrower to a lender for the use of the lender’s money. A corporation pays interest on bonds to its bondholders.

  • International fund - A mutual fund that invests in securities from a number of countries.

  • Investment advisor - A person who provides financial advice or guidance to clients to help them reach their financial goals. Also known as a financial advisor.

  • Investment dealer - A company where financial advisors are registered. Dealer firms provide services to investors directly or through advisors. Services include understanding clients’ financial needs, buying and selling units of investment funds for clients based on their needs, providing account statements and other information, ensuring advisors comply with government rules.

  • Investment fund - A pool of money belonging to many investors that is used to collectively purchase stocks, bonds or other securities. The most common type of investment fund is a mutual fund.

  • Investment fund manager - The company that manages investment funds. This includes setting the strategy and goals for the fund, buying and selling investments for the fund that match the fund’s goals, calculating the daily net asset value of the fund’s investments (which sets the price that you pay/receive on a given day when you buy/sell units of the fund), keeping records for the fund and its investors, including tax reporting, and ensuring the fund meets regulatory requirements.

L

  • Leverage - The use of various financial instruments or borrowed capital, such as margin, to increase the amount invested.

  • Liabilities - All debts or amounts owing by a company in the form of accounts payable, loans, mortgages and long-term debts.

  • Life annuity - An annuity under which payments are guaranteed for the life of the annuitant.

  • Liquidity - The ease with which an investment may be converted to cash at a reasonable price.

  • Load - Commission that the investor pays when buying or selling units of a mutual fund. Also known as loads. The amount is paid to the dealer firm, and is usually based on the purchase or redemption price. The commission may be a one-time charge at the time the investor buys into the mutual fund (front-end load), or charged when the investor sells the investment (back-end load).

M

  • Management Expense Ratio (MER) - Estimates the percent of your investment that you pay for (1) the services you receive for participating in an investment fund and (2) taxes. For example, if you invest $10,000 in a fund with an MER of 2.1%, then about $210 of your investment will be used to pay for these costs each year.

  • Management fee - The sum paid to the fund manager by the investment fund for supervising its portfolio and administering its operations.

  • Margin - (1) Money that is borrowed for the purpose of purchasing securities. (2) The amount of equity contributed by the investor as a percentage of the current market value of the securities.

  • Marginal tax rate - The rate of tax on the last dollar of taxable income.

  • Market index - A vehicle used to denote trends in securities markets. The most popular in Canada is the Toronto Stock Exchange 300 Composite Index (TSE 300).

  • Market price - In the case of a security, market price is usually considered the last reported price at which the stock or bond is sold.

  • Market Value - The price at which an investment can be sold at a specific point in time. The market value of your investment funds changes daily. Therefore, the market value of your funds will always be linked to a specific date, such as the beginning of a statement period or the date of purchase.

  • Maturity - The date at which a loan or bond or debenture comes due and must be redeemed or paid off.

  • Money market - A sector of the capital market where short-term obligations, such as Treasury bills, commercial paper and bankers’ acceptances, are bought and sold.

  • Money market fund - A type of mutual fund that invests primarily in treasury bills and other low-risk, short-term investments.

  • Money purchase pension plan - See defined contribution pension plan.

  • Mortgage fund - A mutual fund that invests in mortgages. Portfolios of mortgage funds usually consist of first mortgages on Canadian residential property, although some funds also invest in commercial mortgages.

  • Mortgage-backed securities - Certificates that represent ownership in a pool of mortgages. The holders of these securities receive regular payments of principal and interest.

  • Mutual fund - The most common type of investment fund. About 4.9 million Canadian households—from first-time investors to long-term savers—rely on mutual funds to build their savings.

N

  • Net asset value - The value of all the holdings of a mutual fund less the fund’s liabilities.

  • Net asset value per share - Net asset value of a mutual fund divided by the number of shares or units outstanding. This represents the base value of a share of unit of a fund and is commonly abbreviated to NAVPS.

  • No-load fund - A mutual fund that does not charge a fee for buying or selling its units.

O

  • Open-end fund - An open-end mutual fund continuously issues and redeems units, so the number of units outstanding varies from day to day. Most mutual funds are open-ended.

  • Opening Market Value - The market value of a security at the beginning of a period of time.

  • Option - The right or obligation to buy or sell a specific quantity of a security at a specific price within a stipulated period of time.

  • Over-the-counter market - A securities market that exists for securities not listed on stock exchanges. Bonds, money market securities and many stocks are traded on the over-the-counter market.

P

  • Par value - The principal amount, or value at maturity, of a debt obligation. It is also known as the denomination or face value. Preferred shares may also have par value, which indicates the value of assets each share would be entitled to if a company were liquidated.

  • Pension adjustment - An amount that reduces the allowable contribution limit to an RRSP based on the benefits earned from the employee’s pension plan or deferred profit sharing plan. An individual’s pension adjustment can be found on a T4 statement and on a Revenue Canada Notice of Assessment.

  • Pension plan - A formal arrangement through which the employer, and in most cases the employee, contribute to a fund to provide the employee with a lifetime income after retirement.

  • Portfolio - All the securities which an investment company or an individual investor owns.

  • Power of attorney for personal care - A person chosen by an individual to make decisions and act on his/her behalf regarding health care and medical treatment, including diet, housing, clothing, hygiene, and safety.

  • Power of attorney for property - A person chosen by an individual to make decisions and act on his/her behalf regarding matters related to property and finances during the individual’s lifetime if the individual does not have the capacity to make his/her own decisions. The person acting as a power of attorney can be a relative, friend or another trusted individual. The person acting as a power of attorney does not have to be a lawyer. Appointing a power of attorney must be done in writing. Rules governing powers of attorney vary by province, so be sure you understand them in your own province.

  • Preferred share - An ownership security, senior to the common stock of a corporation, with preferred claim on assets in case of liquidation and a specified annual dividend.

  • Premium - The amount by which a bond’s selling price exceeds its face value. Also the amounts paid to keep an insurance policy in force.

  • Present value - The current worth of an amount to be received in the future. In the case of an annuity, present value is the current worth of a series of equal payments to be made in the future.

  • Preserving capital - Protecting your initial investment by investing in low-risk securities. Low-risk securities tend not to rise or fall as much as high-risk securities, so gains and losses tend to be lower. This approach is usually a priority for people investing for a short time. It is also appropriate for retirees and those approaching retirement who may be relying on their investments to generate a stable income in the short-term and have limited time to recover any losses if the markets experience a downturn.

  • Price earnings ratio - The market price of a common share divided by its earnings per share for 12 months.

  • Principal - The person for whom a broker executes an order, or a dealer buying or selling for his or her own account. Also, an individual’s capital or the face amount of a bond.

  • Prospectus - The detailed legal document describing securities for sale, including information about the company’s operations, management and more Investors who do not want to read the full prospectus for a mutual fund can find key information in the fund’s Fund Facts document.

  • Purchases (also known as contributions) - The amount of money you have placed in an investment fund.

R

  • Ratio withdrawal plan - A type of mutual fund withdrawal plan that provides investors with an income based on a percentage of the value of units held.

  • Real estate fund - A mutual fund that invests primarily in residential or commercial real estate.

  • Real estate investment trust - A closed-end investment company that specializes in real estate or mortgage investments.

  • Realized gains or losses - When an investor sells an investment (such as a mutual fund), the investor realizes any gain or loss in the investment’s value. Before the investment is sold, its value could change many times, but you do not benefit from the gain (or lose from the decline) until you actually sell it.

  • Redeemable shares - Preferred shares or bonds that give the issuing corporation an option (or obligation) to repurchase securities at a stated price. These are also known as callable securities because the issuing corporation can call them in.

  • Redemptions - Amounts that you have withdrawn from an investment fund.

  • Registered education savings plan (RESP) - A plan that enables a contributor, on a tax deferred basis, to accumulate assets on behalf of a beneficiary to pay for a postsecondary education.

  • Registered retirement income fund (RRIF) - A maturity option available for RRSP assets to pay out a prescribed amount of income each year at retirement while continuing to shelter the remaining assets from tax.

  • Registered retirement savings plan (RRSP) - A retirement savings plan to hold amounts deducted from taxable income, within certain limits, in a tax-deferred state. The last day you can make a contribution to your RRSP is December 31 of the year you turn 71 years of age.

  • Retained earnings - The portion of net earnings not paid out as dividends but retained by the company to be reinvested in the business or to pay debt.

  • Rights - Options granted to shareholders to purchase additional shares directly from the company concerned. Rights are issued to shareholders in proportion to the securities they may hold in a company.

  • Risk - The possibility of loss; the uncertainty of future returns.

S

  • Sales charge - Commission that the investor pays when buying or selling units of a mutual fund. The amount is paid to the dealer firm, and is usually based on the purchase or redemption price. Sales charges are also known as loads. The commission may be a one-time charge at the time the investor buys into the mutual fund (front-end load), or charged when the investor sells the investment (back-end load).

  • Securities Act - Provincial legislation regulating the underwriting, distribution and sale of securities.

  • Securities Commissions - Government organizations in each province and territory in Canada that regulates the distribution and sale of mutual funds and other securities in its jurisdiction. The securities commissions across the country have formed a voluntary organization, the Canadian Securities Administrators (CSA) to improve, coordinate and harmonize regulation of the Canadian capital markets. However, some securities laws may differ among jurisdictions

  • Shareholders’ equity - The amount of a corporation’s assets belonging to its shareholders (both common and preferred) after allowance for any prior claims.

  • Shares - Holding shares means having part ownership of a company. The terms share and stock are often used interchangeably.

  • Short selling - The sale of a security made by an investor who does not own the security. The short sale is made in expectation of a decline in the price of a security, which would allow the investor to then purchase the shares at a lower price. Short sellers make money if the stock price declines, and lose money if the stock price increases.

  • Simplified prospectus - An abbreviated and simplified prospectus distributed by mutual funds to purchasers and potential purchasers of units or shares (see “Prospectus”). Investors who do not want to read the full prospectus for a mutual fund can find key information in the fund’s Fund Facts document.

  • Specialty fund - A mutual fund that concentrates its investments on a specific industrial or economic sector or a defined geographical area.

  • Spread - The difference between the interest rate a financial institution pays to people who deposit money and the interest rate the financial institution charges people who borrow money.

  • Stock options - The right (but not the obligation) to purchase a corporation’s stock at a specified price within a specific time period. If the stock price increases, the person holding the option could exercise his/her right to purchase the stock and make a profit. If the stock price does not increase, the person does not have to exercise his/her right to purchase the stock.

  • Stocks - Holding shares means having part-ownership of a company. The terms share and stock are often used interchangeably.

  • Strip bonds - The capital portion of a bond from which the coupons have been stripped. The holder of the strip bond is entitled to its par value at maturity but not to the annual interest payments.

  • Systematic withdrawal plan - Plans offered by mutual fund companies that allow unitholders to receive payment from their investment at regular intervals.

T

  • Tax credit - An income tax credit that directly reduces the amount of income tax paid by offsetting other income tax liabilities.

  • Tax deduction - A reduction of total income before the amount of income tax payable is calculated.

  • Tax-Free Savings Account (TFSA) - A registered plan that allows you to earn tax-free investment income and capital gains on money contributed up to a set annual limit.

  • Trade - Buying or selling a security.

  • Trading expense ratio (TER) - The TER is the cost of trading securities in a fund. This cost is not included in the fund’s management expense ratio (MER). The TER is expressed as a percentage of fund’s average total assets (e.g., 0.2%). You can find the TER of a fund in the Fund Facts document for the fund. [Note: In the U.S. and many other countries, the abbreviation TER has an entirely different meaning: it is short for “total expense ratio”. The U.S. TER differs from Canada’s MER because it generally includes management costs but not distribution costs, while the Canadian MER usually includes both management and distribution costs.]

  • Trailing commission - A fee paid on an ongoing basis by the fund manager to the dealer for services and advice provided to the client while the client invests in the fund. This amount is included in the price of the mutual fund that you purchase.

  • Treasury bill (T-bill) - Short-term government debt. Treasury bills pay no interest but are sold at a discount. The difference between the discount price and par value is the return to be received by the investor.

  • Trust - An instrument placing ownership of property in the name of one person, called a trustee, to be held by the trustee for the use and benefit of some other person.

U

  • Underwriter - An investment firm that purchases a security directly from its issuer for resale to other investment firms or the public or sells for such issuer to the public.

  • Unit trust - An unincorporated fund whose organizational structure permits the conduit treatment of income realized by the fund. The term is used synonymously with mutual fund in the UK.

  • Unrealized gains or losses - Unrealized gains or losses occur when a stock’s value changes after an investor has bought it, but before s/he sells it. If the stock value rises, the investor has an unrealized gain. If the stock value decreases, the investor has an unrealized loss. When the investor sells, the stock, s/he “realizes” the gain or loss.

V

  • Variable life annuity - An annuity providing a fluctuating level of payments, depending on the performance of its underlying investments.

  • Vesting - In pension terms, the right of an employee to all or part of the employer’s contributions, whether in the form of cash or as a deferred pension.

  • Volatility - The degree and speed of changes in an investment’s value over a given period of time. Investments that change in value gradually, or minimally, are said to have lower volatility than those that change rapidly or significantly and frequently during the same time period. Volatility is usually measured historically – how an investment has acted in the past – and that behaviour suggests how the investment may behave in the future, although no one can predict the future.

  • Voluntary accumulation plan - A plan offered by mutual fund companies whereby an investor agrees to invest a predetermined amount on a regular basis.

W

  • Warrant - Certificates allowing the holder the opportunity to buy shares in a company at a stated price over a specified period. Warrants are usually issued in conjunction with a new issue of bonds, preferred shares or common shares.

  • Wrap account - An account that holds a basket of investments designed to serve a client’s goals and that is professionally managed.

Y

  • Yield - Annual rate of return received on investments, usually expressed as a percentage of the market price of the security.

  • Yield curve - A graphic representation of the relationship among yields of similar bonds of differing maturities.

  • Yield to maturity - The annual rate of return an investor would receive if a bond were held until maturity.

Z

  • Zero coupon bond - A bond that has had its coupons removed and pays no interest and is initially sold at a discount to the principal value.