Administrator

The person or company responsible for maintaining the operations of the superannuation fund. Administration entails keeping records up to date, processing claims, paying out benefits and ensuring annual reports and member statements are distributed to members annually.

All ordinaries index

An Australian Stock Exchange measure of the share price movements of the 250 Australian companies identified in the index

Annual report

A document distributed annually detailing the financial position of the company and other relevant information. All superannuation funds (excluding self-managed superannuation funds) are required to provide an annual report to their members detailing information specified by legislation. Information which must be disclosed in the annual report includes: a summary of the financial position, the investment objectives and strategies of the fund including; asset allocation, reserves, fees and charges; names of trustees and persons to contact for further information.

Asset class/sector

Refers to a grouping of securities with broad characteristics in common. These sectors include Australian shares, international shares, property, cash, Australian fixed interest, international fixed interest and private capital (ie. private equity and infrastructure).

Average IRR

The arithmetic means of the internal rates of return. See “Internal Rate of Return”

Balanced fund

A fund or portfolio which invests in all major asset classes. ie. cash, fixed interest, property and shares, domestically and internationally. It provides long term capital growth and a reasonable level of income.

Basis point

One hundredth of 1 per cent: 100 basis points equals 1 per cent.

Benchmark

The long-term “neutral” asset mix within the limits of the strategy range of a particular asset class. A benchmark provides a standard for measuring the individual fund manager’s investment performance. It is used by trustees to determine the investment option best suited to their profile. The benchmark index is the generally accepted market index, which is used to assess performance (eg. the All Ordinaries Accumulation Index.)

Beneficiary

A person for whose benefit assets are being held. Beneficiaries of a superannuation fund are the members and their dependants.

Benefit

The amount of money in a superannuation fund or RSA to which the fund member or RSA holder is entitled.

Beta

A measure of the price volatility of a security or portfolio, compared with the market as a whole.

Bond

A debt security issued by entities such as: - corporations, Governments or their agencies (eg. statutory authorities). A bond holder is a creditor of the issuer and not a shareholder.

Book to Market Ratio

The ratio of a firm’s accounting value (book value) of its equity to the value of the equity assigned by the market (i.e. the product of the number of shares outstanding and the share price).

Book value

The value of an asset as recorded in the books of account of an organisation.

Bull market

A market which is likely to rise; a situation where a dealer is more likely to buy than sell stock/currency/commodities and therefore establish a bull position. A bull with a long position hopes to sell his purchases at a higher price after the market has risen.

Burn Rate (VC)

The amount of cash that a company requires to keep going. Closely related to (burn time) (ie, how long until we run out of cash?).

Capital

The value of an investment in a house or business, represented by total assets - total liabilities.

Capital Growth

An increase in the market value of an asset. The term is also used as a description for the asset profile of an investment fund, for example a capital growth fund. In this case, the fund would invest a significant proportion of the fund in assets which have the potential to increase in value, typically shares and property.

Closed Fund

In regard to superannuation, the fund is no longer accepting new members. In regards to an investment fund, the fund is no longer accepting new investors, or additional deposits from existing investors.

Concessional Contribution

Regular or one off payments to a superannuation fund including employer, salary sacrificed and contributions you claim as a tax deduction.

Conciliation

The process of bringing two disputing parties together to seek an agreed outcome, with the assistance of a neutral third party.

Contribution Cap

Concessional contributions – Annual cap per person of $25,000 for persons under 50 and $50,000 for persons over 50 up until 30 June 2012; and Non-concessional contributions – Annual cap per person of $150,000 or $450,000 over 3 years for persons under 65. Any contributions over these contribution limits are taxed at the highest marginal tax rate.

Contributions Tax

The income tax charged on assessable contributions received by superannuation funds or RSA providers.

Contributions tax is currently 15% and is payable on all tax-deductible member contributions and all employer contributions.

Any contributions over the legislated contribution limits are taxed at the highest marginal tax rate.

Convertible notes

Securities that are convertible into the ordinary shares of a company at a pre-set price or ratio at specified times. Convertible notes are attractive to some investors because they display certain properties of bonds and shares.

Custodian

In regards to a superannuation fund, the custodian holds and has title to the fund assets. A custodian is usually a company.

Default

Failure to meet a debt obligation.

Diversified option

An option which generally invests in more than three asset sectors.

Diversification

The process whereby funds are spread among classes of securities and geographical localities in order to distribute and control risk. As a result, the return on the portfolio as a whole varies less than the return on smaller lots of individual stocks.

Dividend

The distribution of part of the earnings of a company to its shareholders.

Earning rate

Interest or growth rate earned on amounts held in the superannuation plan or investment.

EBITDA

This is Earnings Before Interest, Taxes, Depreciation and Amortisation. This is an accounting measure of operational earnings that provides a more accurate view of the performance of a company’s core business versus the net earnings of a company.

Enterprise Value (EV)

A measure of a company’s value, calculated by: market capitalisation plus debt & preferred shares minus cash and cash equivalents. It is the theoretical takeover price that a buyer would pay for a company less the cash.

Enterprise Multiple (EV/EBITDA)

A ratio used to determine the value of a company. The enterprise-multiple takes debt into account, something which other multiples like the P/E ratio do not include. Enterprise Multiple = Enterprise Value/EBITDA A company with a low enterprise multiple can be viewed as undervalued and therefore a good takeover candidate

Equity Carve-out

A carve-out is when a company sells a minority (normally 20% or less) stake in a subsidiary for an IPO (initial public offer) or rights offering.

Equity Kicker

A transaction in which a small number of shares or warrants are added to what is primarily a debt financing.

ERF (Eligible Rollover Fund)

A superannuation fund or approved deposit fund which is eligible to receive benefits rolled over from other funds.

Ethical Investing

Using a set of ethical principles as an input into a securities selection process. Ethical investing may choose to eliminate certain industries entirely (such as gambling, alcohol, or firearms)

Exit Fee

A charge levied when assets are withdrawn from the superannuation fund or RSA.

Initial Public Offer (IPO)

The first fund-raising from the general public. It generally results in a listing on a stock exchange.

Injury

Means bodily injury which is caused solely and directly by external, violent and accidental means, is independent of any other cause and is not caused by a person’s own hand or suicide irrespective of whether the person is sane or insane.

Interdependency Relationship

You are considered (whether or not related by family) to have an interdependency relationship with a person if: (a) you have a close personal relationship with that person; and (b) you live together with that person; and (c) either of you provides the other with financial support; and (d) either of you provides the other with domestic support and personal care.

If you and another person (whether or not related by family) satisfy the requirements set out in paragraph(a) above but do not satisfy the requirements of paragraphs (b), (c), and (d) and the reason why those requirements are not satisfied is because either of you or both of you suffer from a physical, intellectual or psychiatric disability, you are still considered to have an interdependency relationship.

Investment risk

Link to Risk Factor (Attached).

Kangaroo bond

Bond issued by a foreign company or body (such as the Asian Development Bank) in Australian dollars.

Legal Personal Representative

Means the executor of your will or the administrator of your estate.

Listed Asset

A company that is publicly owned and listed on a recognised exchange.

Liquidity Premium

This is the additional return for investing in a security that cannot easily be turned into cash.

Long Term

In investment terms, generally speaking, is in excess of five years. However, there is no exact definition and in some instances, holding an asset for three years is said to be long term.

Long term investment

An investment which generally matures in more than five years.

Macro

Usually in reference to economics. The study of economic aggregates and their relationships to, for example, money, employment, interest rates, government spending, investment and consumption.

Management Fee

A fee charged by the superannuation fund’s management for services provided.

Mandated Contributions

mandated contributions from your employer are the sum of:

1. Contributions made under an agreement certified or an award made on or after 1 July 1986 by an industrial authority; and

2. Contributions required under the Superannuation Guarantee Charge Act 1992 or the payment of any shortfall components.

Medicare Levy

The levy expressed as a percentage of taxable income that is paid by most Australians in addition to normal tax to help pay for the public health system. Currently it is 1.5% of taxable income.

Member Benefit Statement

A statement required under legislation to be sent to each superannuation fund member at least annually which includes specific details relating to their benefits in the plan. The information includes:

1. The amount each member has vested in the fund at the beginning and end of the period and the method used to calculate this;

2. How much of the member’s balance is preserved;

3. Member/employer contributions during the period;

4. Net earnings allotted to each member;

5. Level of insurance benefits available; and

6. Fees, charges and expenses which have been deducted.

MSCI Accumulation Index ($A)

The Morgan Stanley Capital International Index in Australian dollars. It measures the way international shares values have changed ($A) and includes reinvestment of dividends. This index is a market proxy for international share portfolios.

Moving average return

Simple average return of a security over a defined number of time periods

Non-Commutable Income Stream

Generally referred to as a “Transition to Retirement” Income Stream. This product can be accessed if a member has reached their preservation age but has not satisfied a condition of release to permit the full payment of their benefits and they are continuing to be employed.

Non-Concessional Contribution

Regular or one off payments to a superannuation fund including your personal contributions for which you do not claim as a tax deduction and contributions made by you or your spouse for the benefit of the other spouse.

OECD

Organisation for Economic Cooperation and Development. Formed in 1961 to promote cooperation among industrialised member countries on economic and social policies. The 25 members are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, UK and USA.

Portfolio

The list of holdings in securities owned by an investor or institution.

Payback Period

Time taken for a project to recover its initial investment.

Payout Ratio

Dividend as a proportion of earnings per share.

Personal Contributions

Contributions made to the superannuation fund by a member from after-tax income.

Preservation Age

The age at which a permanently retired member can gain access to the preserved superannuation benefit.

Privatisation

Involves a private enterprise or syndicate purchasing a government asset or service.

Recapitalisation

The restructuring of a company’s balance sheet by either increasing or decreasing the amount of corporate debt. The aim is to alter the capital structure of a company in order to improve its profitability. This strategy is considered to be a form of financial engineering.

Registrable Superannuation Entity (RSE) Licensee

A constitutional corporation, body corporate or group of individual trustees that holds an RSE licence granted under section 29D of the SIS Act.

Return

Return is calculated after investment and administration fees, costs and taxes. Returns are net of investment and administration fees and tax and have been calculated.

Return target

A target return is a pricing that prices a business based on what an investor would want to make from any capital invested in the company. Target return is calculated as the money invested in a venture, plus the profit that the investor wants to see in return, adjusted for the time value of money.

Risk

In investment terms risk is a measure of volatility. Volatility is a measure of the variability of returns and is the standard deviation of investment returns over a specific period of time. The higher the standard deviation, the higher the level of risk associated with that investment.

Rollover

The transfer of a superannuation benefit payment into a superannuation fund.

Securities

Written undertakings securing repayment of money. They are typically negotiable instruments such as bonds, bills of exchange, promissory notes or share certificates which establish ownership and payment rights between parties.

Securitisation

Substituting tradeable securities for privately negotiated instruments.

Seed Capital

Start-up Capital.

Short Term

In general, in investment terms, it means up to one year.

Shares

Also known as equities. A person who buys a portion of a company’s capital becomes a shareholder in that company’s assets and as such receives a share of the company’s profits in the form of an annual dividend. There are different types of shares, for example ordinary, preference, cumulative preference and participating preference shares.

Socially Responsible Investing (SRI)

An investment approach that considers social and environmental issues an important part of assessing any investment. Common themes for socially responsible investments include avoiding investment in companies that produce or sell addictive substances (like alcohol, gambling and tobacco) and seeking out companies engaged in environmental sustainability and alternative energy/clean technology efforts.

Spouse Contributions

These are made by a fund member on behalf of his/her spouse. Spouse contributions are fully preserved.

Superannuation

A means of setting aside funds during an individual’s working life for use in retirement.

Superannuation Complaints Tribunal

A tribunal established by the Federal Government to deal with complaints about decisions of superannuation fund trustees. The tribunal requires complaints to be fully addressed through the fund’s internal dispute resolution procedure before considering a complaint.

Superannuation Income Stream

A pension payable from a superannuation fund or RSA and eligible for tax concessions.

Superannuation guarantee charge (SGC)

This is the penalty imposed on an employer if they do not pay the required superannuation guaranteed contributions.

SIS

Superannuation Industry (Supervision) Act 1993. This is now the governing legislation for superannuation funds, approved deposit funds (ADFs) and pooled superannuation trusts. The trustees of these entities must comply with SIS in order for the funds to be concessionally taxed.

Tax Dependant

Includes your spouse (legal or de facto) your children under 18 years of age (including step, adopted or ex-nuptial children) and any other person, who in the opinion of the Trustee, is or was at the date of your death financially dependent on you and any person with whom you had an Interdependency Relationship at the time of your death.

Tax Free Component

The non-concessional contributions and pre July 1983 segments (if any) of your superannuation benefit payment.

Taxable Income

Assessable income minus any allowable deductions, calculated for the purpose of determining gross tax payable.

Taxable Component

The taxable portion of your superannuation benefit payment.

Total and Permanent Disablement (TPD)

You will be Totally & Permanently Disabled where you:

1. Suffer the loss of use of two limbs or the total and permanent loss of sight of both eyes or the loss of use of one limb and the total and permanent loss of sight of one eye (where limb is defined as the whole hand or the whole foot); or

2. Have been absent from your occupation through injury or illness for six consecutive months and provide proof to the satisfaction of MetLife (and the Trustee) that you have become incapacitated to such an extent as to render you unlikely ever to engage in any gainful profession, trade or occupation for which you are reasonably qualified by education, training or experience.

Trust Deed

A trust deed is a legal document that sets out the Fund’s constitution, objectives, purpose and also includes the rights, duties and responsibilities of the Trustee and beneficiaries if any (i.e. both members and their dependants). The trust deed is a vital document as action taken by a Trustee which is contrary to its terms can be challenged by other parties such as the beneficiaries.

Trustee

A trustee is a person or company appointed under a Trust Deed to:

1. Act as a legal representative of the Fund;

2. Hold legal title to the Fund’s assets for the beneficiaries and

3. Make sure that the Fund is conducted in accordance with the provisions of the trust deed and relevant legislation.

Trustee Fee

An annual fee paid for the services of a professional trustee, usually expressed as a percentage of assets under management.

Underwriter

A firm which buys an issue of securities from a company and resells it to investors.

Unit Price

The unit price is a measurement that reflects the value of a Fund at a point in time. Prices are either allocation or issue (buy in at) or release or redemption (sell at). The total investment of a unit holder can be measured by the number of units held multiplied by the unit price

Under/outperformance

The measure of performance against an index, competitor or any other benchmark.

Under/overweight

Underweight is less than the benchmark holding in an asset class; overweight is greater than the benchmark holding.

Unlisted Asset

A company that is privately owned and not listed on the stock exchange. Unlike a listed company that is publicly owned and listed on a recognised exchange.

Volatility

A measure of the variability of returns. It is often taken as a proxy for investment risk.

Venture Capital

A term used interchangeably with private equity. AMP Capital defines Venture Capital as finance provided by one or more private investors to help the development of a relatively young business. American venture capital houses tend to refer to venture capital as investment in technology related businesses.

Yield

A measure of return on an investment expressed as a percentage (calculated by dividing the income from an asset by its current capital value).

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