Frequently Asked Questions

Glossary of Financial Terms

Q. Asset

The resources owned by a company, fund or person. Assets can be tangible, eg. cash, investments, property and equipment, or intangible, for example goodwill, patents.

Q. Asset Classes

A broad category of assets, eg shares, cash, property.

Q. Brokerage

A fee charged by a broker to execute a transaction for you, eg buy or sell shares. It is usually calculated as a percentage of the amount you invested.

Q. Compliance Plan

A document lodged with ASIC by a managed investment scheme. It describes the measures that the responsible entity (the operator of the scheme) has put in place to ensure that the scheme operates within the law and the scheme's constitution.

Q. Constitution

A managed investment scheme's constitution sets out the rules which apply to the managed investment scheme.


Q. Dividend

A dividend on shares is a payment to shareholders by a company. A dividend is part of the profits earned by the company.

Q. Dividend Imputation

A tax rule under which the tax paid at the company level is credited to individual shareholders. With imputation, if the company has paid company tax, the dividends you receive carry a tax credit which can be offset against your tax liability on the dividends.

Q. Financial Product

A financial product includes any of the following: interests in a managed investment scheme, derivatives, general insurance, life insurance, superannuation, basic deposit products and retirement savings accounts. For some purposes shares and debentures are also classed as financial products.

Q. Financial Services Guide (FSG)

You must be given an FSG by an Australian financial services (AFS) licence holder or its authorised representative before you receive a financial service. In time critical cases, the services may be provided immediately and the FSG must then be provided within 5 days. The FSG explains the nature of financial services being offered, the fees charged and how the person providing the service deals with customer complaints.

Q. Franked Dividends

With dividend imputation, if a company pays company tax, the dividends carry a tax credit which can be offset against your tax liability on the dividends. If a company pays the full company tax rate, the dividends are fully franked.

Q. Fund Manager

A commercial organisation that manages investors' money for a fee. When the fund is a managed investment scheme, the fund manager is usually the responsible entity.

Q. Listed Company's Shares

Listed company's shares can be bought and sold on the Australian Securities Exchange (ASX). A requirement of listing is that the company agrees to abide by the ASX rules.

Q. Margin Call

If the listed prices of shares or units fall below a level that would cover a lender's loan to you, then the lender will ask you to contribute the difference.

Q. Option

The right to buy or sell shares or securities at a set price and within a set period. The buyer/seller has the right but not the obligation to buy or sell. If the option is not exercised, the buyer/seller forfeits the money paid for the option (the option premium).

Q. Oversubscribed

When the value of share applications received in a company float is more than the number available to be issued.


Q. Principal

A principal holds a licence and authorises an agent (representative) to act on its behalf. The agent may be an employee or someone external to the licence holder. Only agents external to to the licence holder are called authorised representatives. Employees and authorised representatives are collectively called 'representatives'.

Q. Product Disclosure Statement (PDS)

The document that the issuer of a financial product must provide to potential investors of the product. It gives information about the issuer, benefits, risks and costs of the product and certain other information.

Q. Property Trust

A type of collective investment (investors pool their money together and a professional manager operates the scheme) which invests in residential or commercial properties.

Q. Prospectus

The document that must usually be issued by a company seeking to raise money from the public. It gives details of the financial and management status of the company.

Q. Responsible Entity

A licensed entity or body that operates a managed investment scheme.

Q. Return

The amount you make on your investment. Often refers to the annual amount you receive, eg a dividend.

Q. Rights Issue

When a company provides existing shareholders the opportunity to buy more shares in the company at a discounted rate and without the need to buy through a broker.

Q. Securities

For financial markets these are the many types of financial instruments (that is documents) which are traded in financial markets (except futures contracts). For example, bonds, shares.

Q. Shares

A share is simply a part-ownership of a company. If, for example, a company has issued a million shares, and you own ten thousand shares in it, then you own one per cent of the company. As a part-owner of a company, you are investing in the management of the company. You should invest in companies you feel confident are well run.

Q. Sharemarket

At its most basic, the stock market (or stock exchange) is a market which brings together people who want to buy shares in a company, and those who want to sell their shares. The laws of supply and demand determine the prices buyers and sellers settle on. The companies that use the service provided by the stock market, ie their shares can be bought and sold on the Stock Exchange, are referred to as listed companies.

Although providing a market for the buying and selling of shares in listed companies is the core activity of the Australian Securities Exchange, it also provides a market for a growing number of secondary products derived from shares (called 'derivatives') such as options and warrants. If you want information about these more complex products, we recommend you speak to your stockbroker.

Q. Speculative

The speculative deal involves taking a big risk, but deliberately so, in the hope of making an extraordinary gain.

Q. Statement of Advice (SOA)

When you receive personal advice from an Australian financial services (AFS) licensee or its authorised representative then you will be given an SOA as well as a financial services guide. The SOA records the advice you have been given and explains the basis for the advice.

Q. Takeover

When one company acquires shares in another company in order to get a controlling interest in that company.

Q. Trust Account

The account where an adviser, solicitor or other professional holds a client's money on behalf of them. The trust account is usually used to park a client's money until they decide how they want to invest their money.

Q. Unit

When you invest in a managed investment scheme, you hold units in the scheme. The units may fluctuate in value depending on the market performance of the underlying assets of the scheme.

Q. Warrant

A certificate giving you the right to buy shares at a stipulated price within a specified time.

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