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A
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Administrative costs
The professional administration of assets worth hundreds or even thousands of millions costs
money, and so it should. After all, a service is also being provided. However, the capital
investment company is not able to charge any amount it chooses, rather it must specify the
level or maximum level of the administrative costs both in the fund rules, which have to be
approved by the national finance minister, and in the fund prospectus. The administrative costs
reflect the complexity of a given fund and are usually lowest for money market funds and highest
for equity funds specialising in niche markets. They range from a few tenths of a percentage
point to 2.5% or more per year. The administrative costs usually also cover the fees of the custodian
bank unless otherwise specified in the fund rules.
Experience shows that capital investment companies handle administrative fees with great care so as
not to have a negative effect on performance caused by excessively high rates. On the other hand,
it is also apparent that reasonable administrative fees could still be introduced by a good fund
manager.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: &quto;Was ein Privatanleger
�ber inländische Investmentfonds wissen sollte.")
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Annual report
A fund's statement of account. The statement shows costs and earnings as well as asset growth for a
given accounting period.
Asset allocation
Asset structuring. Research into asset allocation is concerned with determining what the
percentages of the various investment objects (assets) should be in order to achieve an
optimally structured portfolio. In addition to the characteristics of the assets
(opportunity/risk ratio, return), the criteria for the decision also include the preferences
and financial situation of the investor. While the risk and return can be calculated
objectively by means of mathematical models, the subjective preferences of the investor
(tolerance to risk, size of the total assets) also play an important role.
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B
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Balanced funds
Balanced funds can invest in equities as well as bonds. They combine the growth prospects of equity investment
with the returns from fixed-interest securities. This broadens the fund manager's investment options. In the
event of stagnating or falling equity prices, he is able to switch to fixed-interest securities; if a positive
trend emerges in the equities market, he can shift the emphasis back to investment in equities.
Bear
A person who expects stock market prices to fall and speculates accordingly.
Opposite: "Bull"
Benchmark
A benchmark is a means of comparison for measuring investment success. The index from the investment
region in which the mutual fund invests is commonly used for this purpose.
Blue chip
Major listed company with a good international reputation.
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Bond
A bond is a long-term borrowing arrangement. The issuer undertakes to repay the principal amount
and to pay interest at specific times. A bond is issued for the total amount and is subdivided into
partial debentures accompanied by written certification.
As for the issuer, distinctions are made between public bonds (state, government, post office,
etc.), corporate bonds and bonds issued by mortgage banks (mortgage-backed bonds).
Break-even, break-even point
The profit threshold, i.e. the level above which a product or a company makes a surplus, or profit. The
point above which figures are "in the black".
Bull
A stock exchange optimist who expects prices to rise and commits himself accordingly.
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C
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Capital gains tax (KESt)
Austrian capital gains tax (KESt) has been 25% since 1.7.1996 and is withheld at the time of the payout
of certain types of investment income. The special feature of the KESt is how the tax is collected and
settled. There are two forms of KESt:
KESt I is levied on dividend income of domestic incorporated firms. It is a tax collected at source and, as
an Austrian tax, is therefore limited to sources based in Austria.
KESt II is levied on interest income in the wider sense. It covers investment income from:
- cash deposits in banks domiciled in Austria
- other receivables from banks
- convertible bonds and participating bonds
- securities, other than old issues, that certify an entitlement and whose coupon-paying agent is resident in Austria
The KESt amount, which is published on the fund page in the last column, is deducted from the issue price with
the acquisition of fund units. The capital gains tax is paid to the tax office on the date of the payout.
Capital adequacy
One of the column headings in the investment fund supplement to the official list of quotations of the
Vienna Stock Exchange. The column contains capital adequacy figures for the individual funds. These have
no meaning for the private investor but are exclusively intended for Austrian credit institutions and
certain institutional investors (e.g. pension fund managers) who are also investing in domestic mutual
funds. They indicate to a savings institution or bank the percentage of a fund's calculated value that
they must back with equity capital (the remainder is capable of bringing in quick returns). Some private
investors may therefore also consider a low capital adequacy figure to be an indication of a fund's
security.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein Privatanleger
über inländische Investmentfonds wissen sollte.")
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Capitalplan
Capitalplan (= fund-based saving) is a simple but highly profitable product of ERSTE-SPARINVEST
KAG. It is the ideal combination of savings and investments in securities. Mutual funds are not
only designed for large investments, but are also worthwhile for smaller, monthly savings. Investors
pay a set amount at regular intervals (e.g. monthly): you can invest in funds for as little as 50
euros.
Capital investment company
A credit institution (in accordance with Section 1 Paragraph 1 Line 13 of the Banking Act) in the
legal form of a limited liability company (GmbH) or public limited company (AG) that is authorised
to manage capital investment funds. A capital investment company is not permitted to engage in other
(banking) business beyond this remit and its associated activities. The Austrian Investment Fund and
Banking Acts provide a series of measures aimed at protecting the investor.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein Privatanleger
über inländische Investmentfonds wissen sollte.")
Cash transaction
An expression used to describe exchange transactions that are characterised by being completed within a
short time frame (delivery, acceptance and payment). For cash transactions in securities, for example,
the purchase price must be paid at the time of delivery (opposite: futures trading).
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D
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Derivatives
Derivatives is the term used to denote futures business, i.e. options and futures. They are mainly
traded on dedicated futures exchanges and are used as a hedging solution on the one hand and for speculative
trading on the other (e.g. hedging the Vienna Stock Exchange against net losses by selling ATX futures
on the ÖTOB).
Dividend
A dividend is the distributed portion of a corporation's profits. It is not the same as the total profit
of a PLC because the dividend sum is reduced by provisions and the like. The dividend level and payout
is decided at the company's AGM.
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Duration
The term duration describes a numerical indicator developed by Frederick Macaulay for assessing bond risk. It
is a measure of the risk of changes in interest rate for fixed-interest securities. It represents the average
duration of capital tie-up for invested capital, expressed in years. The longer the duration of a bond fund,
the more sharply the net asset value increases or falls if interest rates change.
Here is a simple example, without taking interest rates into consideration: if you invest 1.2 million and
receive it back after one year, the money was tied up for one year. However, if you receive 100,000 back every
month, the money invested was tied up on average for only half a year. Unlike a bond's time to maturity,
however, the duration also takes into account all interest payment flows. The longer the duration (the average
duration of capital tie-up in years), the greater the bond interest rate risk, since, during this time, market
interest rates could rise or fall and with them the bond price.
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E
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Equity fund
Equity funds are funds which invest predominantly or exclusively in shares. Equity funds
can also be as diverse as the equity markets themselves. They may concentrate on national
markets (individual stock exchanges), on sectors, on major blue chips or on small or mid
cap stocks, etc. However, the fund rules usually stipulate that certain portions of the
fund's assets may be invested in the money market or in bonds. The aim is to provide the
fund manager with an alternative in the event that the stock markets suffer heavy losses.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was
ein Privatanleger über inländische Investmentfonds wissen sollte.")
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F
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Floater
Floaters are bonds with a variable rate of interest which is usually linked to a reference interest
rate and is set at regular intervals.
Floor
The floor (bottom limit) is the minimum price below which the fund should not fall. The value at the
end of the year should therefore at least correspond to the value at the beginning of the year.
Fund assets
Fund assets is a term for all the assets in a capital investment fund. It consists of securities and other
entitlements, cash in bank and bank deposits, claims to earnings (income adjustment), and may also contain
derivatives (e.g. options, futures, swaps, etc.). These assets may sometimes be reduced by borrowed funds or
commitments arising from derivatives. The fund assets are the sole property of the unitholders; the capital
investment company simply manages them. This means that unitholders cannot lose their assets even if the capital
investment company or the custodian bank goes into liquidation.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein Privatanleger
über inländische Investmentfonds wissen sollte.")
Fund mergers
The Austrian Investment Fund Act provides for the possibility of merging one capital investment fund with another
(after a certain period of notice and with the approval of the federal finance minister). This law has taken into
consideration the structural change in the Austrian banking sector and given individual capital investment
companies the ability to manage their funds more appropriately and economically, not least to the benefit of
the investor.
During the fund merger, one fund is terminated in its entirety (de facto, it ceases to exist) and the assets are
transferred to another (sometimes even new) fund. A precise subscription ratio is derived from the calculated
values of the two funds so that no unitholders may suffer a loss (especially since fractions left over are to
be paid in cash).
A fund merger (which from the point of view of the investor looks like the sale of one fund and the purchase of
another) is not treated as a taxable disposal. As such it does not interrupt the speculative period and is even
possible in old anonymous accounts.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein Privatanleger
über inländische Investmentfonds wissen sollte.")
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Fund of funds
Funds of funds are capital investment funds that invest up to 100% of fund assets in other funds
(subfunds). Funds of funds do not comply with the UCITS Directive, however, they must only invest
in subfunds which comply with this Directive. With a fund of funds, a domestic capital investment
company can "buy into" the know-how of internationally reputed fund companies and thereby
cost-effectively invest in markets which would otherwise require a disproportionately high outlay.
There is an additional benefit for the individual investor in a fund of funds with international
subfunds: he is spared the costly taxation management of (many) individual subfunds and receives,
as usual, a declaration in the statement of account for his fund of funds. A distinction can also
be made between bond, equity and balanced funds of funds, depending on the subfund selection.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein
Privatanleger über inländische Investmentfonds wissen sollte.")
Fund rules
Fund rules are one of the legally required prerequisites for any domestic mutual fund and must be approved
by the federal finance minister and published. They contain the most important rules by which funds must
be managed. Fund rules are divided into two main parts: the first part is the general fund rules governing
the legal relationship between the unitholder and the capital investment company; the second part contains
the special fund rules. They designate the custodian bank, set out in detail the permissible investments and,
in particular, the investment constraints, the amount of the initial charge, the financial year, the
administrative fee, the use of earnings and the timing of any distribution or payout. The fund rules always
form part of the fund prospectus.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein Privatanleger
über inländische Investmentfonds wissen sollte.")
Futures
Futures are contracts for the future delivery or sale of a particular good. Futures contracts on commodities
are referred to as commodity futures, while those on equities, bonds, indices and currencies are financial
futures. Futures commit the buyer to purchasing goods or financial products on a specified date. If you are
a future short, i.e. if you have sold a future, you are obliged to deliver the underlying option. The obligation
to deliver something and to accept a delivery can only be avoided by liquidating the position.
Futures contracts for goods (commodities) or financial products (financials) are traded on a futures exchange.
The futures exchange serves two investor groups. One group uses futures contracts to hedge themselves against
price losses. The other group, which is the vast majority, are the speculators.
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H
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Hedging
"Hedging" means safeguarding an investment instrument against market fluctuations. This is
usually achieved using derivatives (options, futures). Hedging can be used anywhere where there is
an opportunity to establish a counterposition. In finance, hedging is a relevant strategy in covering
interest rate, price and currency exchange risks.
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High yield
Yield is a term used to denote return, earnings and effective (interest) return.
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I
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Income adjustment
A part of any fund assets consists of accrued or already collected income (interest, dividends, price
gains, etc.) which naturally form part of the calculated value, the issue price and redemption price. If
a new unitholder now invests in the fund, the proportion of the net asset value corresponding to the
earnings is also credited to the appropriate income account or debited from it when units are redeemed
by the unit holder. This is known as income adjustment.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein
Privatanleger über inländische Investmentfonds wissen sollte.")
Index
A measure for a trend - whether it is the movement of consumer goods prices (consumer price index) or the
performance of a securities market. Nowadays, almost everything in the money and capital markets is measured
and their performance tracked (since 1986, even the prices of the "Big Mac" have been recorded
in 100 countries throughout the world using the "Big Mac index", with the prices being converted
into US$ and used to measure the purchasing power of individual currencies). It is therefore necessary to
find out which one of the numerous indices available best reflects the selected market or market sector.
Incidentally, the most famous "index" in the world, the "Dow Jones Industrial", is not
a real index at all, but an average: originally, the prices of 12 American stocks were simply divided by
12. Today, there are thirty stocks and the divisor is much more complicated (depending on capital increases
and decreases, new stocks, etc.). Nevertheless, the whole world is now guided by the "Dow Jones
Index".
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein Privatanleger
über inländische Investmentfonds wissen sollte.")
Initial charge
To cover the costs associated with the issuing of fund units (investment units), the capital
investment company may impose a premium on the issue price. The type and level of this initial
charge must be made perfectly clear in the fund rules. The initial charge may noticeably reduce
the income from the investment if the investment period is particularly short.
Many investors consider the initial charge (which may be between 1 and 4%, depending on the type
of fund) to be an unacceptable cost because they compare or confuse it with the normal "stock
exchange fees" charged in the purchase of bonds, equities or derivatives.
In economic terms, however, the initial charge is more of a "flat-rate substitute fee"
which is used to cover the costs of the innumerable purchases, sales and other transactions undertaken
within the fund. Over a longer investment period, an initial charge is still considerably more favourable
than the sum of individual stock exchange fees.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein
Privatanleger über inländische Investmentfonds wissen sollte.")
Inventory value
The sum of all assets within a mutual fund, i.e. the value of all securities, cash balances, money deposits
and other entitlements. The inventory value is calculated each working day.
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Investment Fund Act
InvFG, the abbreviated form of "Investmentfondsgesetz" (Investment Fund Act), is the term
commonly used in place of the "Bundesgesetz über Kapitalanlagefonds" (Federal Capital
Investment Fund Act). The InvFG was completely revised in 1993 and adapted to meet the Directives of
the European Union (UCITS). More recently, it was considerably extended at the beginning of 1998. It
regulates virtually all the finer details of the Austrian investment business, including tax
treatment. However, the main concern of the InvFG is to protect the investor, which is why the aspects
of security, control and advertising regulations feature prominently.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein
Privatanleger über inländische Investmentfonds wissen sollte.")
Investment limit rules
One of the measures which the Investment Fund Act provides to protect investors is the comprehensive
formulation of investment rules and associated investment limits, some of which must be specified in
more detail in the fund rules. These may be reduced but not increased. The aim of these investment
rules and limits is to control the risk that may arise through a concentration of investments. In
Austria, for example, only 10% of the fund assets may be held in securities that are not traded on a
securities exchange or a recognised securities market of an EEA member state (valuation) or a maximum
of 10% in securities of the same issuer (where a maximum of 7.5% of the capital stock of the same public
limited company may be acquired). In particular, transactions involving derivatives (options, forward
transactions, futures, financial and currency futures contracts and options thereon), the type of such
transactions (long or short) and also their purpose (hedging of parts of the fund portfolio) are also
subject to strict rules.
Compliance with the investment rules and limits is continuously checked by the fund manager, the auditor
of the capital investment company and the bank auditor.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein Privatanleger
über inländische Investmentfonds wissen sollte.")
Issue
The issue of new securities (equities, bonds, participation certificates, etc.). The issue allows the
issuer to raise capital and is usually made by public offering. The securities included in an issue
(issue volume) are often jointly referred to simply as the issue.
Issuer
Legal entity under civil law (e.g. corporation) or a public body (e.g. a federal state) issuing new
securities.
Issue price
The issue price is the price at which mutual fund units are sold. The issue price comprises the net
asset value and the initial charge as defined in the fund rules.
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K
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Key data, financial
Key performance indicators are used in financial key data analysis and are intended to cover specific
analysis fields. They are usually used to compare companies and sectors over multiple periods. The basic
materials are the balance sheet and the profit and loss statement for the periods concerned and the
budgeted balance sheet for forecast purposes. To make them more meaningful, the individual figures must
be broken down further or other figures may be required for clarification purposes. The usefulness of
an analysis using key data increases with the use of benchmarking applications. Since these applications
are inherently systematic, they rule out the possibility of any arbitrary inclusion or exclusion of
indicators in an analysis. The present systems can be grouped into two categories: logical deductive
systems (e.g. du Pont system) and empirical inductive systems (e.g. Beaver).
None of the systems has so far been fully convincing. To date, there still does not exist a theory as a
basis for a logical deductive benchmarking application that allows an insolvency or non-insolvency
prognosis. The empirical inductive systems have not been tested enough, they usually only apply to
specific sectors in specific countries and do not stand up to scientific theoretical criteria.
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M
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Min/max performance
Min/max performance is the highest gain in % p.a. and the lowest gain in % p.a. achieved in the yearly
period concerned, taking into consideration reinvestment of dividends.
The min/max chart shows the range of fluctuation of the respective mutual fund within a certain investment
period.
Mean time to maturity
The average mean time to maturity of the portfolio is derived from the mean of the terms of the individual
fund securities from the valuation date to repayment.
Money market funds
Money market funds are mutual funds that invest in money market paper (e.g. interest-bearing
treasury paper, non-interest-bearing treasury paper from the government, the railways and the
postal service) and liquid securities with very short maturities. The advantage over time deposits
or savings deposits is that you are not tied to specific time limits of 30, 60 or 90 days, but can
have access to the money at any time and still enjoy an attractive rate of interest.
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Modified duration
The modified duration indicates the percentage change in the market value in response to a change in yield
of one percentage point.
Example:
Modified duration: 3.73
Net asset value: 98.53
Fund return: 5.9
Assuming that the return falls to 4.9 %, the net asset value will increase by 3.73 % to 102.21.
Mutual fund
A mutual fund is a special fund consisting of securities and cash which is divided into units and
co-owned by the unitholders. Legally, mutual funds are governed by the Investment Fund Act.
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N
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Net asset value
The net asset value, or accounting par value, is the value of a fund unit, which is calculated
daily by the custodian bank as follows: the sum of all securities, monies, credits, receivables
and other entitlements in a fund portfolio less any liabilities - in short the inventory value
- divided by the number of units issued. All fund asset values are of course valued at current
prices and, in the case of bonds and bank deposits, interest is accrued on a daily basis. The
net asset value is the basis for determining the issue price and also the redemption price. Only
using this precise and highly complex calculation is it possible to ensure that no unit purchaser
contributes too little to the fund or that no unit seller takes too much out of the fund to the
detriment of all other unitholders.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein
Privatanleger über inländische Investmentfonds wissen sollte.")
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New shares
New shares are those issued to raise capital for a corporation. New shares are offered first to
original shareholders since they are entitled to pre-purchase shares under their subscription
rights. If the shareholders do not exercise their subscription rights, the remaining new shares
are traded on the stock exchange until they achieve the status of "original shares"
(full dividend entitlement).
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O
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Option grant
The irrevocable contract to deduct voluntary capital gains tax (KESt) on old issues. Depending on
the bank concerned, this may be granted for an entire securities account or just for one individual
security.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein
Privatanleger über inländische Investmentfonds wissen sollte.")
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Ordinary income
An expression used in taxation in connection with domestic mutual funds and foreign capital investment
funds. As opposed to extraordinary income (capital gains), ordinary income refers to interest and
dividends that are channelled into the fund and which are paid out or reinvested less the administrative
fees.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein
Privatanleger über inländische Investmentfonds wissen sollte.")
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P
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Payout
The payout consists of the income earned within a mutual fund. Mutual funds which pay dividends
usually pay out the income once a year. The income accumulates in the fund assets until the payout
date, thereby increasing the unit value over the course of the year. When the dividend is paid out,
the unit value is reduced on the payout date by the amount of the dividend.
Performance
Performance is the growth in value (change in value) of an individual security or an entire portfolio
over a certain period of time. It is usually stated in percent per annum. The calculation of the
performance figure takes into consideration the growth in value, any splits and all payouts. It is
assumed that each payout is reinvested immediately and precisely, down to the nearest fraction, in
the same security or fund and this without consideration of charges and taxes. (Long-term) performance
is therefore an objective benchmark for two or more investments - but only if these are actually
comparable. Its meaningfulness for the private investor is therefore rather limited (not least because
of the charges and tax burden).
Unfortunately, performance figures are often used incorrectly even in the investment funds business
and are therefore also interpreted incorrectly. Consider, for example, the year 1994, Austria's worst
ever in terms of bond performance, and compare it with today. The weak 3, 6 and 12 month performance
figures were regularly published uncritically at the time leaving investors uncertain, whereas today
bond portfolios are showing outstanding performance. Nevertheless, the distribution yield of domestic
bond funds was more than 7% in 1994, whereas today it is less than 6%.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein
Privatanleger über inländische Investmentfonds wissen sollte.")
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Portfolio
A collection of capital investments. With securities investment funds, it refers more specifically to the
composition of security assets.
Portfolio turnover ratio
The portfolio turnover ratio (PTR) indicates how often the securities in a fund were changed in a year -
disregarding fund unit purchases and redemptions. 100% means that all securities in this financial year
were changed once.
This figure does not refer to the securities themselves but to the turnover volumes. For example, half
of the securities may have remained unchanged while the other half were changed twice. The figure also
takes hedges into consideration.
A low figure means that the fund manager has changed little in the securities make-up of his fund during
the year. This also means that the fund incurred hardly any charges.
A high figure reveals a lot of activity, active management and, usually, higher costs.
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R
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Redemption price
The price at which the capital investment company takes back an investment unit, i.e. the net asset
value, usually rounded to whole euros or cents (depending on the fund rules).
Reinvestment fund (units)
All the income generated by a reinvestment fund is ploughed back into the fund. The investor does not
therefore receive a regular annual income but enjoys a share in the increase in the mutual fund's
value.
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Return
The return is the current interest accrued daily by the fund assets. It takes into account all
coupons, prices, maturities and payouts.
ERSTE-SPARINVEST mainly uses the "cash flow" method for its calculation. The
"weighted mean" calculation method is used for the following funds: all funds of funds
with a bond portion and all funds containing mortgage bonds.
Risk management
A basic principle of modern portfolio theory and therefore also of the domestic mutual fund. By
deliberately spreading investments over different instruments, markets, currencies, maturities, etc.,
risk is spread in the truest sense of the word. It should be noted, however, that certain (risk)
concentrations may arise despite the spread of risk. So, while a US dollar bond fund will spread
the issuer, maturity, interest rate, market and structural risk, it will not spread the currency
risk from the point of view of euro investors - unless they also hedge the dollar against the
euro.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein
Privatanleger über inländische Investmentfonds wissen sollte.")
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S
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Security
Certificate of ownership under private law that documents an entitlement, whereby the certificate
of ownership is required to exercise this entitlement. Securities can be classified according to
the following criteria:
Type of documented entitlement:
Membership paper (share certificate, provisional certificate), property rights securities (e.g. mortgage
certificate, land charge certificate, investment trust certificate), papers certifying the right to
receivables (e.g. mortgage bond, municipal bond, straight bond, convertible bond, bond with warrants,
bill of exchange, cheque, savings account book, interest coupon)
Type of transfer:
Bearer paper (bearer share, bearer bond, bearer cheque, bearer investment fund certificate), registered
securities (registered share, registered bond, bill of exchange, interim certificate), nonnegotiable
paper (shares subject to restricted transfer, savings bank certificate, mortgage certificate, land charge
certificate);
Type of income accrued:
Securities with a regular fixed income, securities with a regular variable income, securities without a
regular income.
Securities analysis
Analysis, assessment and valuation of securities (equities, bonds, convertible bonds, certificates, etc.)
in respect of any possible advantages/disadvantages of a potential investment. Securities analysis therefore
entails an examination and assessment of the issuer. Its main purpose is to evaluate all of the information
available on the financial position of the issuer. Information is provided by financial analysis. Securities
analysis is usually broken down into the following stages:
Analysis (preparation and highlighting of "critical" points that may have a positive or negative
effect on an investment);
Prognosis (assessment of future income trends based on the analysis of historical data and the information
available on the present position and possible future developments);
Valuation (result of forecast expectations taking into account numerous external price-determining factors,
such as the capital market, the state of the economy, etc.).
Share
A share is a security that evidences a shareholder's rights acquired through the purchase of a share of the
capital stock of a corporation. The shareholder is usually accorded the following rights:
an appropriate share in profits (dividend)
a proportionate share of liquidation proceeds
a voting right at the AGM commensurate with capital share
Equities can be listed and traded on the stock exchange.
Sharpe ratio
The Sharpe ratio is used to determine the risk/reward ratio of a fund. It is calculated by deducting the
risk-free income from the annual average return and dividing the result by the average annual volatility. The
higher the Sharpe ratio, the better the fund has developed in relation to the risk potential of its portfolio.
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Split
Split is a technical term in the securities business. For securities with a nominal par value, such as equities,
a split is achieved by dividing this nominal par value, e.g. a share with a par value of 1,000 can be split to
give 10 shares with a par value of 100; for securities with no nominal par value, such as mutual funds, a split
is generally achieved by dividing the smallest denomination, e.g. one unit is divided into 10 (or two into three,
etc.). The most important thing to note, however, is that the investor can never lose from a split even though
the value (market price) of his individual security is less than it was before the split. This is because he now
has more securities than previously, the total value of which is the same as before the split. On the other hand,
a split makes equities in particular "cheaper", and therefore more attractive to ordinary investors,
which usually results in rising market prices.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein Privatanleger
über inländische Investmentfonds wissen sollte.")
Statement of account
A statement of account has to be drawn up and published for every accounting year of a fund. In Austria, the
content of the statement of account is governed by the Investment Fund Act and is mainly useful for giving
investors a clear summary of how their money is being administered. The statement of account also includes the
audit certificate of the bank auditor, the report of the supervisory board of the capital investment company
and a table showing the taxation of the payouts and/or other disbursed income.
(Based on the brochure published by Erste Bank der oesterreichischen Sparkassen AG: "Was ein Privatanleger
über inländische Investmentfonds wissen sollte.")
Standard & Poor's Stars
In order to give investors a simple decision-making aid in the mutual fund jungle, Standard & Poor�s
(international rating agency) has developed the S&P Fund Stars. Up to five S&P Fund Stars can be awarded,
enabling an immediate independent and objective evaluation of a fund as compared with its competitors. S&P
Stars not only provide information on the 3-year performance, but also on performance consistency as compared
to mutual funds of competitors in the same investment category.
In this connection, the average monthly performance of the fund in relation to its sector over the last three
years period is calculated. This, in combination with the average volatility of the fund as compared to its
sector within this time period, is used to determine the star ranking of the fund.
Clearly, five stars are better than one star - it could not be easier!
Meaning of the stars:
***** Top 10% in a category over 3 years = 10 funds
**** Next 11-30% in a category over 3 years = 20 funds
*** Next 31-50% in a category over 3 years = 20 funds
** Next 25% in a category over 3 years = 25 funds
* Bottom 25% in a category over 3 years = 25 funds
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T
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Time to maturity
The time to maturity is the amount of time remaining before receivables reach their maturity
or redemption date.
Total expense ratio
The total expense ratio (TER) indicates which costs - as a percentage of the fund assets - were incurred
in the fund over the course of the last financial year. In particular, these costs include the management
fee, custodian fee, consultation fees, auditing costs and any other expenses. The lower the figure, the
lower the costs borne by the fund, and the less the effect on performance.
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Trading
Short-term purchases and sales of securities with the aim of profiting from short-term volatility.
Treasury security
Depending on the country concerned, treasury notes may be issued by the government, a nationalised
company or other public institutions and are short to mid-term debentures. Interest-bearing treasury
notes are, like fixed-interest bonds, provided with coupons and have a maturity of three months to
several years. Non-interest-bearing treasury notes are issued without an interest coupon and therefore
do not offer regular interest payments. The interest on the capital is paid at the time of redemption.
Banks like to invest in treasury notes because they represent first-class money market
instruments.
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U
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Unit category
The following code designations are used on our pages to distinguish the individual unit
categories - designated as 'type' in the Fact Sheet:
Code designation A. - units with income paid out
Code designation T. - units with reinvestment
Code designation C. - Capitalplan, where a distinction is made between A.C. (Capitalplan with income
paid out) and T.C. (Capitalplan with reinvestment).
Code designation VT. - units with full reinvestment
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Unit value
The unit value of a mutual fund represents the value of the fund assets divided by the number
of fund units issued. The unit value of mutual funds is determined and published each working day
by the custodian bank.
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W
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Withdrawal plan
With a withdrawal plan, the investor receives regular payments from certain investment
assets. The amount to be disbursed is financed by the sale of the corresponding number
of units. Investors can be paid their capital plus income over a fixed period (withdrawal
plan with capital depletion) or they are paid only the investment income for an unlimited
time (withdrawal plan with capital preservation). Withdrawal plans are particularly suitable
for supplementary pension provision. Contributions, additional withdrawals or termination
of the investment account are possible at any time.
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