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Resource Centre

Glossary

The following glossary has been provided to GLOBEfund courtesy of Ranga Chand, a leading independent economist and author of Ranga Chand's World of Mutual Funds and Ranga Chand's Getting Started with Mutual Funds. You can read excerpts from Ranga Chand's Getting Started With Mutual Funds in the Getting Started section of the Resource Centre.



A
Asset Mix

B
Back-End Load
Balanced Mutual Fund
Bear Market
Bond Mutual Fund
Bonds
Broker
Bull Market

C
Capital Cost Allowance
Capital Gains
Closed-End Mutual Fund
Commercial Paper
Common Share
Coupons

D
Debenture
Deposit Insurance
Derivatives
Distribution Company
Distribution Fees
Diversification
Dividend Tax Credit
Dividends

E
Equities
Equity Mutual Fund

F
Financial Planners
Fixed Income Mutual Fund
Front-End Load

G
Global Mutual Fund
Growth Fund
Guaranteed Investment Certificates (GICs)

H
Hedge

I
Income Fund
International Mutual Fund
Investment Objective
Investment Portfolio

L
Leveraging
Liquidity
Load

M
Management Company
Management Fee
Money-Market Mutual Fund
Mutual Funds

N
Net Asset Value (NAV)
No-Load Mutual Fund

P
Portfolio
Principal
Prospectus

R
Redemption
Registered Investment
Registered Retirement Income Fund (RRIF)
Registered Retirement Savings Plan (RRSP)
Return
Risk

S
Sales Charge
Share
Shareholder
Stock
Switching

T
Total Return
Trailer Fee
Transfer Fee
Treasury Bills

U
Unitholder

V
Volatility

Y
Yield


Asset Mix
Assets are distributed among stocks, bonds, and money-market instruments (treasury bills, certificates of deposit, short-term government bonds, and commercial paper).

Back-End Load
A charge for withdrawing shares from a mutual fund.

Balanced Mutual Fund
An investment fund that usually includes bonds, debentures, or preferred shares, in varying ratios with common stocks.

Bear Market
A prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity, and a bear market in bonds is caused by rising interest rates.

Bond Mutual Fund
An investment fund predominantly made up of bonds and debentures.

Bonds
Certificates issued by borrowers, usually governments or corporations. A bond will normally have a fixed interest rate and a set maturity date, at which time the principal will be repaid in full. A typical bond will have interest coupons attached which are redeemed annually or semi-annually.

Broker
A person who acts as an intermediary in the purchase of securities or insurance.

Bull Market
A prolonged rise in the prices of stocks, bonds, or commodities. Bull markets may last from a few months to several years and are characterized by high trading volume.

Capital Cost Allowance
A tax deduction for the depreciation of various types of assets.

Capital Gains
The difference between the buy and sell price of an asset. The capital gain on stocks purchased for $1,000 and sold for $1,450 would be $450.

Closed-End Mutual Fund
A fund in which the total number of shares is fixed. After the initial offer, the shares can be acquired only from another owner. Share prices are set by supply and demand, not net asset value, and are traded on a stock exchange.

Commercial Paper
Short-term debt securities issued by corporations, banks, and other borrowers.

Common Share
A security representing part ownership in a company, generally carrying the right to vote on major decisions and to receive dividends.

Coupons
Certificates attached to a bond that can be redeemed for interest payments at regular intervals.

Debenture
General debt obligation backed only by the integrity of the borrower. An unsecured bond is a debenture.

Deposit Insurance
Protection of certain types of assets against loss. Bank and trust company deposits are covered by the Canada Deposit Insurance Corporation (CDIC) up to a maximum of $60,000. Mutual funds are not covered by deposit insurance.

Derivatives
Investments that derive their value from underlying assets such as currencies, treasury bills, and bonds or are linked to indices such as a stock market index. Derivatives can be used to speculate on market movements or to protect investments against major swings in market prices.

Distribution Company
A company that has the exclusive right to offer shares of one or more investment funds to the public, directly, or through other investment fund dealers or brokers.

Distribution Fees
Assessments levied by some mutual fund companies on the value of units purchased through a back-end load sales option.

Diversification
An investment technique intended to minimize risk by placing money in a number of securities. In a diversified portfolio, a decline in the value of one stock, for example, would not dramatically affect the overall value of the holdings.

Dividend Tax Credit
A tax credit intended to reduce the effective rate paid on dividend income.

Dividends
Payments made to shareholders of a company in the form of cash or additional shares.

Equities
Common and preferred shares, representing a share in the ownership of a company.

Equity Mutual Fund
An investment fund consisting primarily of common shares, the objective of which is to participate fully in the growth of an economy.

Financial Planners
Professionals who specialize in preparing financial programs for individuals, covering such matters as investments, tax planning, retirement preparation, estate planning, and income generation. Some charge an hourly fee while others make their revenue through commissions on the sale of securities, including mutual funds.

Fixed Income Mutual Fund
A fund that invests in securities which pay interest at a fixed rate, such as bonds.

Front-End Load
The commission charged when mutual fund units are bought.

Global Mutual Fund
A fund that invests in several countries, including its home nation. The fund may specialize in stocks, bonds, or money-market instruments.

Growth Fund
An investment fund that seeks growth of capital as its primary objective. This type of fund invests primarily in common stocks and securities convertible into common stocks.

Guaranteed Investment Certificates (GICs)
Securities issued by financial institutions, such as banks and trust companies, for a specified term. GICs of up to five years issued by members of the CDIC are covered by deposit insurance up to $60,000.

Hedge
A strategy used by fund managers to limit investment risk.

Income Fund
An investment fund whose primary objective is current income. Such funds generally invest their assets in government, corporate, or other bonds. Some income funds may include high-yielding common stocks.

International Mutual Fund
A fund that invests in many countries but not its own.

Investment Objective
A fund's (or investor's) goal. Investment strategies can be designed to generate long-term growth, current income, or other goals.

Investment Portfolio
Securities owned by an individual consisting of a combination of stocks, bonds, and other types of securities.

Leveraging
Borrowing money for investment purposes.

Liquidity
The ability to convert a security to cash quickly.

Load
The fee charged by a mutual fund to investors to buy units (front-end load or acquisition fee) or sell units (back-end load or redemption fee).

Management Company
The business entity that establishes, promotes, and manages a fund or funds, each of which is a separate entity with its own board of directors or trustee(s).

Management Fee
The fee paid to a fund's manager for investment management and certain administrative services.

Money-Market Mutual Fund
An investment fund, the portfolio of which is invested in large denominations of short-term paper (generally maturing in less than six months), designed to provide high yields with no loss of capital.

Mutual Funds
Pools of investment money, managed by professionals, and invested in a wide range of securities.

Net Asset Value (NAV)
The value of mutual fund shares. It is normally calculated daily by subtracting a fund's liabilities from its assets and dividing by the number of shares outstanding.

No-Load Mutual Fund
A fund offered to the public that carries no purchase fee (front-end load) or redemption fee (back-end load).

Portfolio
The combined holdings of more than one stock, bond, commodity, real-estate investment, cash, or other asset by an individual or institutional investor. The purpose of a portfolio is to reduce risk by diversification.

Principal
The amount of money you invest.

Prospectus
The selling document legally required to be distributed to mutual fund investors. A prospectus describes a fund's investment strategy as well as the risks and costs of the investment.

Redemption
The right of a shareholder to sell, at any time, some or all of his or her shares back to the investment fund for cash.

Registered Investment
Any security that is held in a tax-sheltered plan approved by Revenue Canada.

Registered Retirement Income Fund (RRIF)
A fund set up with proceeds from an RRSP to provide income during retirement.

Registered Retirement Savings Plan (RRSP)
A plan registered with Revenue Canada that encourages Canadians to save for retirement by providing tax relief on contributions and earnings.

Return
The amount of money earned by an investment.

Risk
The measurable possibility of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable.

Sales Charge
The amount of commission paid by an investor to a sales organization.

Share
A unit of ownership in a company.

Shareholder
Someone who owns one or more shares in a company.

Stock
Ownership in a corporation represented by shares that are a claim on the corporation's earnings and assets. Common stock usually entitles the shareholder to vote in the election of directors and other matters taken up at shareholder meetings or by proxy. Preferred stock generally does not confer voting rights but it has a prior claim on assets and earnings (dividends must be paid on preferred stock before any can be paid on common stock).

Switching
Moving money from one mutual fund to another.

Total Return
The total amount any investment returns, including any capital gains or losses and any dividends or interest.

Trailer Fee
An annual service commission paid by mutual fund companies to sales representatives. These fees generally range between 0.25% and 1% of customers' assets and are paid out of the fund's management expenses.

Transfer Fee
The price charged to transfer your assets to another company.

Treasury Bills
Short-term debt securities issued most commonly by the federal government.

Unitholder
Someone who holds one or more units in a mutual fund.

Volatility
The amount by which a fund's return varies over time; used as a measure of investment risk.

Yield
Income, usually interest, paid by a security on a regular basis.