Glossary

Feeling confused? Empower yourself with our jargon-busting glossary. All financial terms used in the explanations are defined here too, so you can cross-reference if you get stuck.

Think that a term is missing? Let us know by sending us an email

• Adviser

  Also see intermediary and broker. A certified financial adviser is an individual that is qualified to advise you on your investments. There are different types of advisers so please ensure that the one you select is qualified and registered to advise you on the products you are interested in.

  Often advisers are ‘tied agents’, which means they work for a particular company, such as Old Mutual. A qualified and an experienced Old Mutual Personal Financial Adviser is qualified to advise you across all of Old Mutual’s products or specialise in a specific area and can help to make sure that you have the right mix of insurance, risk and investment products. Independent financial advisers can sell investments and related products and from a number of companies. Whether independent or tied, not all advisers are qualified to advise across all insurance and investment products.

• Adviser fees

  When involved, advisers need remuneration for their time, effort and expertise. These fees are paid to the adviser by the investor (note that the fees only apply to investors who have chosen to employ the services of a financial intermediary (adviser or broker)) and are negotiable within regulated limits. There are two types of adviser fees, please refer to the individual unit trust fund fact sheets for the applicable maximum and minimum percentages.

  • Initial adviser fee: This is a one-off payment and is a percentage of the initial investment amount. This fee is deducted from your investment capital prior to investment. Fixed income unit trusts generally have lower associated fees than equity and asset allocation unit trusts. Note: if you are investing via the Old Mutual Unit Trusts Retirement Annuity Fund or Old Mutual Unit Trusts Living Annuity, the maximum initial adviser fee is a set amount regardless of the underlying unit trusts. This percentage is available on the relevant application form.
  • Annual adviser fees: These are calculated as a percentage of your portfolio’s returns and are paid monthly by the management company to your adviser, by deducting the amount from your current investment portfolio. You can choose from which unit trust this amount is to be deducted or it can be deducted equally across the unit trusts in your portfolio. The percentage can be reviewed at any time.
• Annualised rate of return

  This is the average rate of annual return over a specified period, taking into account the effect of compounding.

• Asset allocation unit trust

  This type of unit trust can invest across all asset classes to offer investors the benefit of diversification, with the aim of offering competitive returns at less risk than single asset class funds with a similar investment objective. The minimum and maximum exposures these unit trust funds may have to each asset class are determined by the fund mandate. This in turn defines their risk/return ratio, i.e. the level of return you may get from a fund is directly proportional to the amount of risk you are prepared to take on. If you have a good risk appetite you will choose a unit trust with a high equity allowance; if you are more conservative you may opt for an investment where equity exposure is limited.

• Asset classes

  These are different types of financial instruments. The asset classes in which a unit trust may invest will depend on its mandate. There are five primary asset classes – each of which is available in both local and offshore options: cash, bonds, equity, property and alternatives. Alternatives include non-traditional instruments like private equity, hedge funds and commodities; these are not available via unit trusts and are aimed at institutional investors.

• Association for Savings & Investment SA (ASISA)

  According to its website, ASISA represents the majority of South Africa’s asset managers, collective investment scheme management companies, linked investment service providers, multi-managers, and life insurance companies. The members of ASISA have mandated this association to proactively engage with policymakers and regulators, as well as intermediaries and consumers, on regulatory and other important issues of common concern.

• Bear market

  This refers to periods of sustained negative market performance.

• Benchmark

  This is an entity against which something may be measured. With unit trusts it is usually an index, a sector or inflation. Unit trusts should at least perform in line with their benchmark in order to deliver on their mandate. This is not always the same as a performance target.

• Beneficiary

  Individuals or organisations that you name to benefit from the proceeds of your investment, should you die. This is particularly relevant for investors in Old Mutual Unit Trusts’ retirement suite of products, where the investor’s desired beneficiaries should be made clear to Old Mutual Unit Trusts.

• Bonds

  Bonds are a fixed income investment and are based on debt, in that you as the investor lend your money to the government or a company that wants to raise capital. In return, they promise to repay your capital on a specific date. In addition, you will receive interest payments at specified intervals and at a predetermined rate. This is a complex asset class as different bonds will mature at different times, and their values depend largely on what the interest rates are. In low interest rate environments bonds increase in value because it is likely that the rate they pay will be better than what your money market investment will pay.

• Broker

  A certified broker, or an independent financial adviser, is a person who is qualified to advise you on structuring your investment portfolio. As they are not usually affiliated to any one company they are able to recommend products from a variety of financial services providers. Also see intermediary or adviser.

• Bull market

  This refers to periods of sustained, and often inflated, positive market performance.

• Capital

  The amount you have to invest.

• Capital gain

  A capital gain is when you sell an asset and make a profit. The profit is your capital gain. When you sell or switch a unit trust you trigger a capital gains event, even if you have lost money.

• Capital Gains Tax

  This is an annual tax levied on the capital gains you have made during a financial year.

• Classic Investment Collection

  Old Mutual’s classic range of five unit trusts is a smart selection aimed at making your investment choice simple. These five funds each suit different investor needs or can be combined with each other, or with unit trusts from our full range, to tailor a portfolio designed to meet your personal needs.

• Collective investment schemes (unit trusts)

  A collective investment scheme (CIS) is a pool of money from a group of investors, which is used to purchase a portfolio of financial securities/assets, which is then managed by a portfolio manager. These schemes provide a relatively secure and affordable way to access global stock markets. CISs are governed by the Collective Investment Schemes Control Act No. 45 of 2002. Read more.

• Compounding

  Arguably the most powerful tool in an investor’s tool box, compounding occurs when you reinvest your income distributions. This means that instead of cashing in on your investment returns, you opt to leave your interest/dividend income in your portfolio. This increases the amount of money you have that is exposed to the growth potential of the assets you are invested in, thus giving you growth on your growth.

• Currency

  This refers to different denominations of money. For example, the rand, the dollar and the pound are all currencies.

• Derivatives

  Certain unit trusts are permitted limited use of these instruments. Common derivatives are futures and options. These cannot exist without the other asset classes and have no intrinsic value of their own, i.e. they derive their value from another asset. For example, an option on a share cannot exist unless the share exists, nor can a future exist without the asset it promises to buy. The derivative itself is a contract between two or more parties and its value is determined by fluctuations in the underlying asset. The most common underlying assets include equities, bonds, commodities, currencies, interest rates and market indices. Most derivatives are characterised by high leverage. Their benefit lies in the fact that they can be used to manage risk, as they allow the manager to take advantage of both positive and negative market performance.

• Distributions

  This is the income you may derive from your unit trust investments, and can be interest income or dividend income, or a combination of the two. You can opt to have these paid into your bank account or to reinvest them into your portfolio.

• Diversification

  Diversification is investing across asset classes/financial instruments in order to limit your losses in the event of poor performance in a particular asset, sector or region.

• Dividend/Dividend income

  Dividends are the portion of its profits a company pays its shareholders, which is called dividend income. Dividends are usually paid biannually or annually. Dividend income is currently tax free in the hands of individual investors.

• Dividend Withholding Tax (DWT)

  DWT is a tax on dividends received by a shareholder and is a ‘withholding’ tax. This means that the entity paying the dividend must subtract the tax from the dividend and withhold the tax before paying the net dividend to the shareholder.

• Domestic unit trusts

  These are unit trusts that have at least 80% of their portfolio invested in local assets.

• Equities

  Equities are also referred to as shares or stocks. These are investments in companies that are listed on a stock exchange, such as the JSE Securities Exchange (JSE) in South Africa.

• Exchange control

  In South Africa, the government limits the amount of exposure individuals, investment vehicles and companies can have to offshore assets. Old Mutual Unit Trusts aligns the exposure of their unit trusts with eth maximum allowance for retirement funds which is 25%, which is limit also applies to the maximum amount of foreign investments an individual investor is allowed to own.

• Exchange traded funds

  An ETF is similar to an index-tracking unit trust, as they both attempt to mirror the basket of securities in an index. The key difference is that an EFT is listed on a stock exchange, so effectively you are buying shares instead of units. The attraction of ETFs is that they combine the advantages of investing directly on the stock exchange (continuous pricing and intraday trading) with the benefits of an index- tracking mutual fund (instant diversification within a regulated framework).

• (FAIS) Financial Advisory and Intermediary Services Act

  This law was enacted in order to protect investors. It aims to regulate the activities of financial services providers and to outline the qualifications and experience that authorised financial intermediaries are required to have in order to offer financial advice to institutions and investors.

• (FICA) Financial Intelligence Centre Act

  Introduced to ensure the integrity of the South African financial system and increase the country’s attraction as an investment destination, this law was enacted to stem the tide of fraud, money laundering and organised crime. FICA governs the ‘know your client’ record-keeping and reporting requirements for accountable institutions, amongst which are all financial services providers.

• (FSB) Financial Services Board

  According to its website, the Financial Services Board is a unique independent institution established by statute to oversee the South African Non-Banking Financial Services Industry in the public interest. The FSB promotes and maintains a sound financial investment environment in South Africa. All unit trusts launched in South Africa must be approved by the FSB.

• Fixed income/Fixed interest unit trusts

  These unit trusts invest in interest-bearing securities such as bonds and money market instruments. They usually aim to generate an interest-based income and are considered to be lower risk investments.

• Foreign unit trusts

  These are South African registered unit trusts available via local management companies and priced in rands. These unit trusts must have 85% of their assets invested offshore at all times.

• Fund

  A fund refers to a portfolio of assets such as a unit trust, or an entity like a retirement annuity fund where the reference is to the assets owned by that particular retirement annuity fund.

• General equity unit trusts

  These are unit trusts that invest in equities (shares) from a variety of sectors, so one unit trust may include financial shares, property shares, industrial shares and resources shares – depending on which shares the portfolio manager believes will help them achieve the unit trust’s investment objective. These unit trusts are regarded as higher risk funds.

• Initial Fees

  An initial fee is an upfront payment on your investment and is calculated as a percentage of your capital investment amount and deducted prior to investment. At Old Mutual Unit Trusts you pay 0% initial fees for investments of R500 or over. However, if your investment falls below R500 you will pay a one-off initial administration fee of 2.24%. If you use an adviser or a broker you will pay an initial adviser fee. Please refer to adviser fees for more details.

• Interest income

  This is income earned from interest-bearing assets such as money market instruments and bonds. With the former, your income will trend in line with the national interest (repo) rate; with bonds the interest you earn is prescribed by the lender.

• Intermediary

  An intermediary is a financial adviser or a broker. You get many types of financial intermediaries but all must be licensed under the Financial Advisory and Intermediary Services Act of 2002 (FAIS). Certain intermediaries will be allowed to sell certain products, so be sure to ask to see their relevant qualifications and approved categories.

  Tied intermediaries are employed by a product provider to sell that company’s products only. Old Mutual Personal Financial Advice employs advisers who specifically sell Old Mutual products. Independent intermediaries or brokers work for themselves and sell products supplied by a variety of product providers.

• Investment objective

  This is what a unit trust manager aims to meet when they are managing a portfolio. The investment objective could be a growth target, an income target, a risk/return target or a combination of these. This is usually linked to the unit trust’s benchmark.

• Listed property

  This asset class consists of property management companies that are listed on a stock exchange.

• Living annuity

  A living annuity, like the Old Mutual Unit Trusts Living Annuity, is a market-linked product that pays you a retirement income, at an adjustable level. You buy a living annuity with your retirement capital. As a living annuity is market linked, its value will fluctuate with the markets and your capital may enjoy good growth, or it may be eroded by poor market performance. Due to this uncertainty we recommend that it should not be your only source of retirement income.

• Mandate

  This is the legal document, approved by the Financial Services Board (FSB), that stipulates what the objective of a unit trust is and in what types of assets, and which regions, it can invest. y

• Money market unit trust

  A unit trust that invests in money market instruments with a maturity of less than 90 days. These investments pay an interest rate related income and offer little capital appreciation.

• Performance fees

  These are charged by certain unit trust funds. View the Performance Fee fact sheet.

• Portfolio manager

  This is the investment professional who manages the unit trust portfolio and decides which assets to buy and sell in order to meet the fund objectives or investment strategy.

• Real return

  This is the return you make net of fees and inflation – i.e. how much actual profit you make.

• Regional funds

  These unit trusts invest at least 85% in a single country.

• Regulation 28

  Regulation 28 of the Pension Funds Act outlines the types of asset classes in which members of retirement annuities, pension/provident and preservation funds may invest, and to what proportion. It aims to protect investors by limiting over-exposure to risky asset classes. Regulation 28 was amended in 2011.

• Retirement annuity

  This is a savings vehicle that enables you to invest towards your retirement. Contributions are tax deductible within legislative limits and your investment is protected should you be declared insolvent. You may not access your investment until your retire – in South Africa the earliest age is 55 years – or in the case of extreme illness. The Old Mutual Unit Trusts Retirement Annuity Fund is a cost- effective example of this.

• Return

  This is the profit you make on your investment.

• Risk-adjusted return

  This concept refines an investment’s return by measuring how much risk is involved in producing that return, which is generally expressed as a number or rating. Risk- adjusted returns are applied to individual securities and investment funds and portfolios.

• Sector

  Companies operate in a specific part of the economy called sectors, such as the financial sector, industrial sector and resources sector.

• Shares

  See equities.

• Specialist equity unit trusts

  These unit trusts are also known as sector funds and invest in equities from one sector. For example, a financial unit trust will be restricted to investing in shares issued by listed financial institutions.

• Stock exchange

  A stock exchange is a company that provides a market where financial instruments may be freely traded in a regulated environment. In South Africa this is the JSE Limited. Companies listed on a stock exchange are public companies. This means that individuals and institutions can buy shares in companies, thereby becoming part owners of the company.

• TER / Total Expense Ratio

  TER stands for total expense ratio. This is the standard used to measure the impact that the deduction of management and operating costs has on a unit trust’s value. In other words, it gives you an indication of the effects that these costs have on the growth of your investment portfolio. Expressed as a percentage, a TER is calculated by dividing the portfolio costs by the market value of the unit trust. It is important to note that unit trust performances are usually reported after fees have been taken into account, i.e. the impact of the TER has already been taken into account.

• Unit trust

  See Collective investment schemes.

• Unit trust classes

  The unit trust industry uses ‘classes’ to differentiate between fees that you will pay for investing in the same underlying unit trust fund. Old Mutual unit trusts generally have four ‘classes’: A, B, C & R.

  Class R and Class A apply to unit trusts for individual investors. Class R refers to a fee structure that applies to unit trusts that existed prior to June 1998 and investors who invested in a unit trust before 1 April 2000. Then legislation changed and enabled management companies to increase their fees. Class A applies to investors who invested in funds launched after June 1998 or in a new class launched after those dates, if the management company chose to change or increase its fees. B and C classes apply to institutions and other bulk buyers who enjoy the benefit of reduced fees and charges.

• Worldwide funds

  These unit trusts can invest in both local and foreign assets, to a maximum of 100% in each.