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Glossary

The terms used on this platform and in our reports, in plain words. Where a term has a legal definition in EU rules, the definition here follows it.

Accrued interest: Interest a bond has earned since its last coupon payment. It is added to the price when a bond changes hands, so the seller receives the interest for the days they held it.
AIF (alternative investment fund): Any fund that is not a UCITS. Its manager is regulated under the AIFMD; the fund's own rules on holdings, borrowing and dealing are set in its prospectus.
Annual cost impact: The reduction in the yearly return caused by all the costs of a product, shown in the KID for an exit after one year and at the end of the recommended holding period. Formerly "reduction in yield".
Ask (offer): The price at which a seller is willing to sell; the price you pay when you buy at market.
Basis point: One hundredth of a percentage point: 25 basis points are 0.25 percentage points.
Best execution: The duty of a broker under MiFID II to take all sufficient steps to obtain the best possible result for a client's order, considering price, costs, speed and likelihood of execution.
Bid: The price at which a buyer is willing to buy; the price you receive when you sell at market.
Bond: A loan in the form of a security: the issuer pays interest (the coupon) and repays the nominal amount at maturity. Its price moves inversely to market interest rates.
Capital call: A demand by a private equity fund for part of the money an investor has committed, made when the fund needs it for an investment.
Carried interest: The share of a private equity fund's profits paid to its manager once investors have received their capital back, typically 20% above a hurdle rate.
CFD (contract for difference): A contract with a provider to exchange the change in the price of an underlying between opening and closing the position, usually with leverage. You never own the underlying.
Clearing: The step after a trade in which a central counterparty places itself between buyer and seller and guarantees both sides until settlement.
Closed-ended fund: A fund with a fixed number of shares that are bought and sold between investors on an exchange, at a price that can differ from the net asset value.
Commitment: The maximum amount an investor promises to a private equity fund; it is called in instalments over several years.
Core inflation: Inflation excluding energy, food, alcohol and tobacco, the components with the most volatile prices.
Coupon: The interest payment of a bond, fixed when it is issued, as a percentage of the nominal amount.
Depositary: The bank, independent of a fund's manager, that holds the fund's assets, checks that the manager follows the rules and that the net asset value is calculated properly.
Deposit facility rate: The interest the ECB pays banks on money they leave with it overnight; since 2024 the rate the ECB uses to steer its policy.
Diversification: Spreading money across holdings that do not move together, so that the risk specific to any one of them largely cancels out. The risk of the market as a whole remains.
DPI (distributed to paid-in): In private equity, the cash returned to investors divided by the capital they have paid in. A DPI of 1.0x means investors have their money back.
ELTIF: European long-term investment fund: an AIF built for illiquid, long-term assets such as unlisted companies and infrastructure, which may be sold to private investors under conditions.
Entry and exit charges: One-off charges, as a percentage of the amount, paid when buying into or leaving a fund. Often waived by distributors.
ETF (exchange-traded fund): A fund whose units are also traded on an exchange throughout the day, with a market maker keeping the price close to the net asset value.
Flash estimate: A first, early estimate of a statistic such as inflation or GDP, published before all the data are in and later revised.
HICP: Harmonised Index of Consumer Prices: the measure of inflation used across the euro area and the one the ECB's 2% target refers to.
High-water mark: The highest value a fund has reached; a performance fee with a high-water mark is only charged on gains above it.
IRR (internal rate of return): The annual rate that makes the present value of all cash flows of an investment equal to zero; an annualised return that takes the timing of payments into account.
J-curve: The shape of a private equity fund's cumulative cash flow: negative in the early years, when capital is called and fees paid, turning positive as investments are sold.
KID (Key Information Document): The standardised document of at most three pages that must be given to private investors before they buy a fund, structured product or insurance-based investment in the EU.
Leverage: Gaining exposure to more than the money put up, through borrowing or derivatives. Leverage of 10:1 means a 1% move in the price is a 10% move on the margin.
Limit order: An order to buy or sell at a specified price or better. It may not execute.
Liquidity: How easily and at what cost an investment can be turned into cash. A fund's liquidity is its dealing frequency; a security's is the depth of its market.
Margin: The money a trader must deposit to open and keep a leveraged position. The EU sets minimum initial margins for CFDs sold to private clients.
Market maker: A firm that continuously quotes prices at which it will buy and sell a security, earning the spread.
Market order: An order to buy or sell at once at the best available price. Certain to execute, uncertain in price.
Negative balance protection: The rule that a private client trading CFDs in the EU cannot lose more than the money in the account.
Net asset value (NAV): The value of a fund's assets minus its liabilities, divided by the number of units: the price at which an open-ended fund deals.
Ongoing charges: The running costs of a fund (management, administration, depositary, audit), deducted from its assets daily. See TER.
Open-ended fund: A fund that issues and cancels units as money comes in and goes out, dealing with investors at the net asset value.
Performance fee: A share of a fund's gains above a hurdle or a high-water mark, paid to the manager in addition to the management fee.
Performance scenarios: The four outcomes shown in a KID (stress, unfavourable, moderate, favourable) for an investment held for the recommended period, computed from past data under a fixed method. Not forecasts.
Prospectus: A fund's full legal document: investment policy and limits, dealing terms, fees and risks.
RAIF: Reserved alternative investment fund: a Luxembourg fund for well-informed investors that needs no product approval because its manager is an authorised AIFM.
Recommended holding period: The period for which a KID's risk indicator and scenarios are computed and for which the manufacturer considers the product designed.
RVPI (residual value to paid-in): In private equity, the value of what the fund still holds divided by the capital paid in, at the manager's valuation.
Settlement: The exchange of securities for money that completes a trade, two business days after the trade (T+2) for shares and bonds in the EU.
Spread: The difference between the bid and the ask price. The buyer pays the ask and the seller receives the bid, so the spread is a cost of every round trip.
Stop order: An order that becomes a market order when the price reaches a specified level; used to cut losses or to enter on a breakout.
Summary risk indicator (SRI): The 1-to-7 risk class in a KID, combining market risk (past volatility) and credit risk, for the recommended holding period.
TER (total expense ratio): A fund's ongoing charges as a percentage of its assets per year. It excludes transaction costs, performance fees, entry and exit charges and costs outside the fund.
Transaction costs: What a fund pays to buy and sell its holdings: brokerage, spreads and taxes. Shown in the KID as a three-year estimate; not part of the TER.
TVPI (total value to paid-in): In private equity, distributions plus remaining value divided by the capital paid in: DPI plus RVPI.
UCITS: Undertakings for Collective Investment in Transferable Securities: the EU standard for funds sold to the public, with prescribed diversification, a depositary and dealing at least twice a month.
Unit: A share in an open-ended fund, representing a proportion of its portfolio.
Volatility: How much a price moves over time, usually expressed as an annualised standard deviation of returns. The VIX and VSTOXX indices measure expected volatility implied by option prices.
Yield: For a bond, the annual return locked in by buying at today's price and holding to maturity; for an index, the dividend yield. Yields rise when prices fall.

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