Glossary

account number

The number that a bank or other financial institution gives to a particular account. This number plus the BSB identifies that account.

account-based pension

A pension purchased with superannuation money on retirement. You can choose the amount of pension you receive each year within minimum and maximum levels set by law. Your super money is progressively drawn down until it runs out. For most people aged 60 and over, these pension payments have been tax-free since July 2007. Account-based pensions were previously known as allocated pensions.

accumulation fund

A superannuation fund where your retirement benefit depends on the money put in by you and your employers and the investment return generated by the fund. Different to a defined benefit fund.

accumulation index

An index that measures the movement of both the price and the returns of an index, for example, the movement in a share price and the dividends paid. An accumulation index assumes all returns are reinvested and compounded.

active investment management

Where the fund manager buys and sells investments to try to get a better return for their investors than the market as a whole.

actively managed

An investment management approach where a fund manager buys and sells investments regularly in an effort to outperform a specific market index, such as the ASX200.

administrative financial platform

An online platform used to buy and sell units in a variety of managed funds. The benefits include being able to see a summary of your investments and consolidated information for tax reporting. A financial adviser charges a fee based on the amount invested through the platform.

advance fee fraud

A scam where you are persuaded to pay fees to a scammer and promised huge rewards in return. Also known as a ‘Nigerian scam’. Similar to a money transfer request.

AFS Licence

An Australian financial services (AFS) licence given by ASIC allows people or companies to legally carry on a financial services business, including selling, advising or dealing in financial products. You should only deal with licensed businesses as you are better protected if things go wrong and you will have access to free dispute resolution services. A licence does not mean that ASIC endorses the company, financial product or advice or that you cannot incur a loss from the investment. ASIC grants a licence if a business shows it can meet basic standards such as training, compliance, insurance and dispute resolution. The business is responsible for maintaining these standards. The ASIC Connect Professional Registers will tell you if the company or person holds an AFS licence.

after-tax super contribution

Money deposited into a super fund after you have paid any tax on it. Different from pre-tax contributions (salary sacrificing), which are contributions made before income tax or where a tax deduction is claimed.

Age Pension

A regular, fortnightly payment from the government when you reach pension age. You must meet certain criteria to get the pension. See age pension and government benefits for more information.

agreed value

Car insurance policies are based on either 'agreed' or 'market' value. An agreed value policy has a set dollar value for your vehicle. Market value policies value your car based on the make, model and condition. The agreed value is usually higher than the market value.

agribusiness scheme

An investment in livestock, farming, horticultural or forestry projects, usually through a managed investments scheme.

allocated pension

A pension purchased with superannuation money on retirement. These have been replaced by account-based pensions.

annual percentage rate (APR)

The interest rate charged to the borrower, excluding expenses such as account opening and account keeping fees. The APR is the basic cost of your credit as a percentage of the total loan amount. Please note that even one credit card will have more than one APR – one for purchases, one for cash advances and one that is charged if you make late payments. A rate that includes all fees is known as a comparison rate.

annuity

An investment, purchased with a lump sum that guarantees to pay a set income for either an agreed number of years, or for life. Generally, your money is locked away for a fixed period or for life, though some annuities allow early withdrawals or for a 'residual capital value'. There is no capital left at the end of the specified period. The income payments may be indexed each year, often in line with inflation. Some annuities allow for reversionary beneficiaries.

ASFA Retirement Standard

The Association of Superannuation Funds of Australia's (ASFA) estimate of how much money you'll need in retirement, depending on your lifestyle.

Source: ASFA Retirement Standard, December quarter 2023

ASFA’s 'modest' standard estimates how much money is needed for the basics.

ASFA’s ‘comfortable’ standard estimates how much money is needed for retirees to be involved in a range of leisure activities and to have a good standard of living including: private health insurance, a reasonable car, household goods and holidays.

Both standards apply for people retiring at age 65 who will live to an average life expectancy of about 85. Both assume you own your home.

Lump sum 

ASFA estimates that a modest lifestyle, which covers the basics, is mostly met by the Age Pension. They estimate the lump sum needed to support a modest lifestyle for a single or a couple is $100,000.

ASFA estimates that the lump sum needed at retirement to support a comfortable lifestyle is $690,000 for a couple and $595,000 for a single person. This assumes a partial Age Pension.

ASFA produces a separate retirement standard for older retirees.

For more information see the ASFA Retirement Standard.

asset

Something you own. It may be a financial item like money, bonds, shares or a bank account or physical item like a house, land or a car.

asset allocation

The way in which your investment is divided across different assets like shares, property, fixed interest or cash.

asset class

A category of investments with similar characteristics and market behaviours. Examples include cash, fixed interest, property and shares.

asset manager

A person or company that manages an investment on behalf of others.

ASX200

The ASX200 is a stock market index that measures the performance of 200 largest companies, by market capitalisation, listed on the Australian Securities Exchange.

Australian credit licence

A licence given by ASIC that allows people or companies to legally engage in credit activities. This includes providing credit under, or assisting with, a credit contract or consumer lease. Or acting as an intermediary between a credit provider and a consumer (for a credit contract). Or between a lessor and a consumer (for a consumer lease). The licensing process is a point-in-time assessment of the licensee, not of it's owners or employees. Holding a credit licence does not mean ASIC endorses the licensee. The ASIC Connect Professional Registers will tell you if the company or person holds an Australian credit licence.

Australian financial services (AFS) licence

A licence given by ASIC that allows people or companies to legally carry on a financial services business. This includes selling, advising or dealing in financial products. Only deal with licensed businesses. You are better protected if things go wrong and will have access to free dispute resolution services. A licence does not mean that ASIC endorses the company, financial product or advice. Or that you cannot incur a loss from the investment. ASIC grants a licence if a business shows it can meet basic standards such as training, compliance, insurance and dispute resolution. The business is responsible for maintaining these standards. The ASIC Connect Professional Registers will tell you if the company or person holds an AFS licence.

Australian Government guarantee on deposits

Refers to the Financial Claims Scheme (FCS) which provides protection to depositors of up to $250,000 per account-holder per authorised deposit-taking institution (ADI) (bank, building society or credit union) in the event of the ADI failing. For joint accounts, each account holder is entitled to the $250,000 guarantee.

To check if your savings are covered by the FCS, see the deposit checker on APRA's website.

Australian Prudential Regulation Authority (APRA)

The prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, friendly societies, and most of the superannuation industry. APRA is responsible for ensuring Australia has a stable, effiecient and competitive financial system. It also provides statistics on the Australian financial sector.

Australian Securities and Investments Commission (ASIC)

The Australian Federal Government agency that enforces laws relating to companies, securities, financial services and credit, in order to protect consumers, investors and creditors.

Australian Securities Exchange (ASX)

Australia’s biggest exchange, where shares in public companies, futures, options, warrants, bonds and other securities and derivatives are traded.

authorised deposit-taking institution (ADI)

Corporation authorised under the Banking Act 1959. Includes banks, building societies and credit unions.

Authorised representative

A holder of an Australian credit licence or Australian financial services licence may authorise a representative to engage in specified credit activities or provide specified financial services on of the licence holder. Such authorisations must be registered with ASIC and can be verified by searching ASIC Connect Professional Registers. 

balanced fund

A fund that invests across a mix of asset classes like cash, fixed interest investments, property and shares, to achieve medium- to long-term capital growth and a reasonable level of income.

bank bill swap rate (BBSW)

The central benchmark interest rate in Australian financial markets at which banks will lend to each other (via bank bills) for periods of 6 months or less.

bankruptcy

A process for individuals to be legally declared as being unable to meet their debt obligations.

benchmark

In investing, an index that can be used to evaluate the performance of an investment. 

beneficiary

Someone who will receive a benefit or asset in the event of the owner’s death. Beneficiaries of a super fund are the members, and their dependants (if the member dies).

bid-ask spread

The difference between the bid price and the ask price for shares or other assets is called the spread. You cross the spread when making an offer to buy at the ask price, which is higher than other buyers have bid. You can also cross the spread when selling at the bid price, which is lower than what other sellers have asked.

binding death benefit nomination

Where the superannuation fund, in the event of your death, must pay your superannuation benefit to your nominated beneficiary, unless it would be unlawful to do so.

blue chip share

A share in a well-established company with a record of stable earnings over a long period, typically a market leader or among the top companies in its sector.

bond

A medium to long-term investment issued by governments and companies which pays a regular, fixed interest amount for the term of the investment. The invested funds (the principal) are repaid at the end of the term (maturity). See also fixed interest investments.

break fee

bridging finance

Short-term finance that covers the period between buying a new property and selling your existing property.

broker

A person who arranges a contract between you and, for example, an insurance or mortgage service provider. Brokers usually receive a commission or fee for arranging a contract.

brokerage

A fee charged by a broker for service.

BSB

A six-digit number that identifies a specific branch of a bank or other financial institution within Australia. The BSB (Bank State Branch) number plus an account number identifies a particular account. 

building society

Community-based financial institution usually owned by its members that offers traditional banking services like savings accounts and loans, listed on the APRA website as a building society.  Also called a mutual building society. See also credit union.

buyer advocate

Paid a fee to work on behalf of a buyer to evaluate and negotiate a property purchase.

call option

An option contract that gives you the right to buy (but does not lock you into buying) the underlying asset at a specified price, at or before a certain time in the future. You would use a call option when you expect the price of an asset to increase.

capital

For individuals, the money or other assets owned for the purpose of investing. For a company, the funds received from owners or investors to further its business objectives.

capital depreciation

A decrease in the value of a capital asset.

capital gain

The difference between what you paid for an asset (including buying costs) and what you got when you sold it (less selling costs).

capital gains tax

A tax on profits made from buying or selling certain assets.

capital growth

The increase in value of an asset over time. Also known as capital gain.

capital guarantee

A product where investors are protected against significant loss of the amount invested. Can contain clauses and performance hurdles that limit the protection. Also called capital protection.

capital stable fund

A fund that invests across a range of asset classes but with a significant portion in defensive assets such as fixed interest investments and cash and a small portion in growth assets such as shares and property. This type of fund aims to provide a moderate level of income with some capital growth.

cash advance

Cash withdrawn from a credit card account. A transaction fee is usually charged, as well as interest from the date the cash is withdrawn until it is paid back in full.

cash investments

Money invested in short-term, interest-paying investments. Having money in a bank account is an example of a cash investment.

cash management account

A transaction account used to receive cash from investments such as dividends or proceeds of sales, and from which new investments are purchased.

cash out facility

Offered by many retailers such as supermarkets, where you can take out extra cash from your cheque or savings account when you pay for purchases with your debit card.

cash rate

The interest rate charged on overnight loans between banks. The Reserve Bank of Australia (RBA) sets a target cash rate in order to control monetary policy.

caveat

In relation to property law, a caveat is a legal notice that shows who has an interest in your property. You can't register a dealing (for example, to sell the property) until all caveats are removed or you get the consent of any people who hold a caveat. To put a caveat on your property or remove a caveat, contact your state's Land Titles Office.

Cboe Australia (CXA)

Australia’s second largest securities exchange offering an alternative trading platform for Australian listed securities as well as a range of unique products including warrants and funds.

chargeback

A return of funds from a retailer or service provider to a consumer's bank account, line of credit or credit card, often initiated by the consumer's bank.

churning

The process of moving a customer from one financial product to another in order for an adviser or broker to earn a fee. This practice usually has little or no benefit to the customer.

clearout

A clearout occurs when your lender has not been able to get in touch with you, despite making reasonable efforts to contact you.

co-borrower

A person who borrows money jointly with you. Each person is responsible for the loan, so if one of you does not pay, the other person must pay the full amount.

co-contribution

A payment, up to a maximum of $500, made by the Government to the super fund of a low or middle income earner who makes after-tax contributions to their super. The co-contribution amount depends on an individual's income and how much they contribute. 

If you are eligible, the Government pays the co-contribution directly to your fund. See the ATO website for more information.  

cold call

An unexpected call or visit by an unknown person, trying to sell something.

collateral

Property or assets you put up as security for a loan.

collateralised debt obligations (CDO)

A bundle of individual loans such as car loans, credit card debt or corporate debt put together and sold as a single investment.

collectables

Items that are rare or in demand and may increase in value over time. Examples include artwork, antiques, coins and wine.

commission

A fee paid to an adviser or salesperson as an incentive for selling a particular product. An upfront commission is based on the sale amount of the product. An ongoing commission is based on the balance of the account.

commutation

Process of converting part or all of a pension or annuity into a lump sum.

comparison rate

A rate that helps you work out the true cost of a loan. It includes the interest rate, and most fees and charges relating to a loan, reduced to a single percentage figure.

compound interest

Interest paid on the initial principal and the accumulated interest on money borrowed or invested.

comprehensive insurance

Cover that provides the policy holder with broad protection. For example, comprehensive car insurance will cover loss or damage to your car and any damage you may accidentally cause to other people’s property.

concessional super contributions

Concessional super contributions are payments put into your super fund from your pre-tax income and are tax deductable for self-employed people. They include your employer's super guarantee (SG) contributions. Concessional super contributions are taxed at 15% when they are received by your super fund.

condition of release

A nominated event you must satisfy to be able to access superannuation savings. Examples include permanently retiring from the workforce after reaching preservation age, reaching age 65 or becoming totally and permanently disabled.

conflict of interest

A situation in which someone in a position of trust has competing professional and personal interests which could make it difficult for them to remain impartial. For example, an adviser or broker may sell you a product that benefits them more than it does you.

construction loan

A type of home loan for people who are building their own home.

consumer credit insurance (CCI)

Insurance that covers you if something happens that affects your capacity to meet the payments on your loan. CCI usually covers risks such as illness, death, disability or involuntary unemployment.

consumer lease

An agreement where you rent an item, like a laptop, TV or fridge, for a set amount of time. You make regular rental payments, typically weekly or fortnightly, until the lease ends. At the end of the lease, you don't own the item. The company you leased it from does. The lease agreement shows you the total amount you’ll pay, including fees. This might be double what it would cost to buy the item outright in a store. The agreement could also be called rent to own or rent to buy. But you may not have an option to buy the item outright at the end of the lease. Whether to buy or gift the item is up to the lease provider.

consumer price index (CPI)

Records the change in purchasing power by measuring changes, over time, in the weighted average price of consumer goods and services such as food, transport and medical care. It represents consumption expenditure by households in Australian metropolitan areas.

contracts for difference (CFD)

A high-risk, leveraged derivative contract between a client and a CFD provider. CFDs let you speculate on short-term market movements, like foreign exchange rates, share prices, stock market index levels, cryptocurrency rates or other underlying assets. Most people lose money trading CFDs. To find out more, see contracts for difference (CFDs).

conveyancer

A conveyancer helps you meet all legal requirements involved with purchasing your home. They'll handle most of the paperwork and questions you have about the process. They review and explain the terms and conditions of the contract.

cooling-off period

A period of time in which you can get out of a contract for the purchase of goods or services, if you change your mind. The rules on cooling-off periods vary between states and territories. Details of a cooling-off period will be included in the contract, if the good or service has one.

corporate bond

A debt security issued by a company to investors to raise money to finance its business activities. Sometime called fixed-income securities because the issuer promises to pay a specific amount of interest on a regular basis and repay the principle on a set date.

Corporate Collective Investment Vehicle (CCIV)

A type of investment fund that uses a company structure. A CCIV is set up using one or more sub funds and an investor can buy shares in one or more of those sub funds. A CCIV has a different legal structure to a managed investment scheme and must be registered as a company with the Australian Securities and Investments Commission (ASIC), using an Australian Company Number (ACN). Each sub fund has its own Australian Registered Fund Number (ARFN).

For more information, see Choosing a managed fund.

coupon rate

The annual interest rate on a bond, paid by a bond issuer, relative to the face value of the bond. 

credit card

A plastic card that gives you access to money the bank has agreed to lend you for a certain period of time. See also interest-free period on credit cards.

credit contract

A document that contains the details of a loan, including the term, interest rate, fees and charges, and repayments. Credit providers must provide you with a credit contract.

credit file

A file kept by a credit reporting agency that shows your credit history. Lenders access the information in your file to help them decide whether to lend to you. They can also record a default on your file if you make loan repayments late, or don't pay a utility bill. Every time you make an application for finance an entry is recorded on your file showing the lender you applied to, the type of finance, the amount and the date. See also credit report and credit rating.

credit guide

Anyone engaging in credit activities (for example, by providing credit or credit assistance to you) must give you a credit guide. A credit guide will contain information about the lender, such as their licence number and external dispute resolution (EDR) scheme membership. It will also include the sort of costs you might pay if you take a loan from the lender.

credit limit

The maximum amount a bank will lend you under a loan or a credit contract.

credit rating

An assessment of the credit-worthiness of individuals and corporations, based on their borrowing and repayment history.

credit report (credit reference)

A report that details your credit history, including every time you have applied for credit or defaulted on a repayment. It is held by a credit reporting agency and a lender must ask you for permission to get this report. See also credit file.

credit reporting agency

An organisation that collects and sells credit information on individuals and companies.

credit union

Community-based financial institution owned by its members that offers traditional banking services like savings accounts and loans, listed on the APRA website as a credit union.  See also building society.

creditor

A person to whom you owe money.

Critical Information Summary (CIS)

A document supplied by a telecommunications provider that contains information about what you will pay and what you will get for your money. The information is presented in the same way so you can easily compare one provider's price and service with others.

currency risk

The risk that the value of your investments will be affected by changes in foreign currency exchange rates.

death benefit

A payment made from a super fund to a beneficiary when you die. For example, from a super fund or insurance policy.

debenture

A medium-term investment issued by a company where investors lend them money in exchange for a regular and fixed interest amount for the term of the investment. The invested funds (principal) are repaid at the end of the term (maturity) and are usually secured by tangible property. They may be offered at call or for a set period. 

debit card

A plastic card that gives you access to your bank accounts via ATM and EFTPOS facilities.

debt agreement

A legal agreement for the repayment of unpaid debts that is less formal and intrusive than bankruptcy. The agreement is between you and all of your unsecured creditors and allows you to pay back your debts over an extended period of time at an amount per week you can afford.

debt consolidation

When several loans are combined into one, with the aim of reducing repayments. Also known as loan consolidation.

debt investment

Comprises cash and fixed interest investments. You lend money to an organisation in return for interest payments. The company you lent to now owes you or is indebted to you.

debt to equity ratio

Total debt divided by total equity. A company's equity represents the amount of shareholder's funds.

default fee

An amount of money that you may be charged if you fail to make a repayment when it is due on a loan or credit card.

defensive asset

Cash or fixed interest investments that are generally low risk and less volatile than growth investments.

deferred establishment fee

A fee charged by a lender when a loan is paid off before a set period has elapsed e.g. 3 years. Also known as an exit fee. It's to cover the costs the lender incurred in setting up the loan.

deferred payment

A debt that can be paid off at some time in the future.

defined benefit fund

A super fund where your retirement benefits are calculated by a predetermined formula. Retirement benefits are usually calculated using your average salary over the last few years before you retire and the number of years you worked in the company or public service. In general, market fluctuations have limited effect on the value of your benefit, although in periods of prolonged economic downturn, your defined benefits could be affected. If the fund performance is poor, the trustee will generally ask an employer to help pay member benefits as required.

dependant

A person who relies on you for financial support e.g. children under 18 or your non-working spouse.

deposit bond

Can be used in place of a deposit when a buyer exchanges contracts on a property. It guarantees that the buyer will pay the full deposit by an agreed date.

depreciation

A decrease in the value of an asset.

derivative

A financial instrument whose value is 'derived' from an underlying asset such as a share, commodity or index. Common types of derivatives include options and futures contracts.

direct debit

A payment collection method that allows loan or service providers to draw money from your bank account on a regular basis.

dispute resolution

A way to resolve issues instead of going to court. All Australian Financial Services (AFS) licensees, banks and other credit providers must belong to a dispute resolution scheme.

diversification

Spreading investments across a variety of different asset classes or within an asset class to reduce risk.

dividend

A payment made by a company to its shareholders. The payment is a share of the profits of the company and is based on the number of shares a person holds. A franked dividend consists of profits the company has already paid tax on.

dividend yield

A financial ratio that measures how much a company pays out in dividends each year relative to its share price.

Division 293 tax

An extra 15% tax on the super contributions of high income earners. This tax is charged if your income plus your concessional super contributions are above $250,000. There are different tax rules for members of defined benefit super funds. More details are available on the Australian Tax Office website. Find out more about tax and super.

early termination fee

A fee which may be applied if a loan is repaid earlier than the stated term.

earnings per share (EPS)

A financial ratio calculated by dividing the company’s earnings (profits) by the number of shares on issue. The higher the EPS, the more a share is potentially worth. See also price equity ratio.

effective interest rate

An annual interest rate that takes into account the effect of compound interest and fees. Also known as an effective yield or the annual percentage rate (APR).

EFTPOS (Electronic Funds Transfer at Point of Sale)

EFTPOS is an Australian network for processing credit cards, debit cards and charge card payments at the 'point of sale'. EFTPOS also allows users of the system to withdraw cash at the time of purchasing a product or service through the merchant's EFTPOS terminal. This function is known as 'debit card cashback' in many other countries.

eligible rollover fund (ERF)

A holding account designed to receive the super benefits of lost members and those with low account balances that are no longer receiving contributions.

emerging market

Low to middle income economy typically undergoing significant economic and political reform as it transitions from a developing to a developed nation. They tend to have relatively underdeveloped economies, legal systems and regulatory frameworks, and a high government presence in their market.

employer share scheme

An employer scheme that gives employees shares, or the opportunity to purchase shares, in the company, sometimes at a discount to market rates. Shares may be offered as part of an employee's remuneration or bonus, or through a loan or salary sacrifice arrangement. 

enduring power of attorney

Like an ordinary Power of Attorney (PoA), an enduring power of attorney authorises your nominated representative to make property and financial decisions for you. Unlike an ordinary PoA, an enduring PoA continues to have effect if you become mentally incapacitated at a later date.

Enhanced regulatory sandbox

The Australian Government's enhanced regulatory sandbox (ERS) allows individuals and businesses to test innovative financial services and credit activities.

ERS participants do not need an Australian financial services (AFS) licence or an Australian credit licence while they are testing their product or service. You can check the public register to see if a person or business is using the ERS exemption.

If you get financial services or buy a financial product from an ERS participant, they must give you the relevant disclosure documents. A Statement of Advice (SOA) or a product disclosure statement (PDS), for example. Responsible lending obligations also apply. 

entity

A business, company, individual or group of individuals.

EPS

A financial ratio calculated by dividing the company's earnings (profits) by the number of shares on issue. The higher the EPS, the more a share is potentially worth. See also price equity ratio.

equities

An equity is part ownership of a company. Equities are also known as shares or stocks. Shareholders are entitled to dividends which represent their portion of the company's profits.

equity

The value of an asset such as your house or property, less any money owing on it.

equity investment

An investment where you buy and hold shares in a company or property from which you expect to receive income and capital gains.

equity release

A way of accessing the equity in your home to provide you with additional funds in retirement. See reverse mortgage and home reversion.

ERF

A holding account designed to receive the super benefits of lost members and those with low account balances that are no longer receiving contributions.

establishment fee

A one-off fee which may apply to set up a personal or other loan.

estate

All of a person's assets, whether real property or personal property, and their liabilities or debts.

ethical investment

An investment strategy that promotes positive environmental, social or ethical issues. Avoids investment in industries and companies that produce goods harmful to health, society or the environment e.g. chemicals, tobacco, armaments. Each fund will have its own interpretation of the values it wants to protect or promote. You will find details in the company's PDS. Also known as socially responsible, sustainable or socially conscious investing.

excess

In relation to an insurance contract, it is the amount of an insurance claim that consumers have to pay. The amount is specified in the insurance policy.

exchange rate

The price at which the currency of one country can be exchanged for the currency of another.

exchange-traded fund

A managed fund or unit trust that is quoted and traded on a stock exchange such as the ASX. ETFs generally seek to mimic the performance of a specific index, such as the S&P/ASX 200 index, a currency, such as the USD, or a commodity, such as gold. 

exchange-traded treasury bond (eTB)

A type of Australian Government Bond quoted and traded on the Australian Securities Exchange that is a medium-to long-term debt security with a fixed face value ($100) and a fixed annual interest rate. 

exchange-traded treasury indexed bond (eTIB)

A type of Australian Government Bond quoted and traded on the Australian Securities Exchange. It is a medium to long-term debt security with a fixed interest rate but a face value that is adjusted for movements in the Consumer Price Index (CPI). 

exclusion

In relation to an insurance contract, it is something that is specifically not covered under the insurance policy. Depending on the type of policy these may include specific events, illnesses or pre-existing conditions.

execution risk

When a lack of market liquidity causes a gap between the price at which you place a trading order, and the price you receive. This can be a risk when trading certain complex products such as contracts for difference (CFD) and foreign exchange (FX) contracts.

executor

A person specified in a will, or appointed, to administer the will.

External Dispute Resolution (EDR) Scheme

face value

The value of a security set by the company issuing it that will be the amount payable on maturity. This may differ from the market value, that is, the amount it trades for.

fee for service

An amount paid to a service provider such as an accountant, adviser or lawyer, for specific work, completed at your request, for your benefit. Different to a commission.

finance broker

A go-between who negotiates with banks and other credit providers to arrange loans on behalf of others. They must be licensed by ASIC or be an authorised representative of someone who is licensed. See check ASIC lists for how to check for a licence.

financial adviser

A person or authorised representative of an organisation licensed by ASIC to provide advice on some or all of these areas: investing, superannuation, retirement planning, estate planning, risk management, insurance and taxation. May also call themselves a financial planner.

Financial Claims Scheme (FCS)

An Australian Government-backed safety net that protects deposits of up to $250,000 per account holder per authorised deposit-taking institution (ADI) (bank, building society or credit union) in the unlikely event of the ADI failing. It also covers most general insurance policies for claims up to $5,000, with claims above $5,000 eligible if they fulfil certain criteria.

financial counsellor

A person who gives free, confidential and independent assistance to people with financial problems. Financial counselling services are usually provided by community or welfare organisations.

financial influencer

Financial influencers (also known as 'finfluencers') discuss financial products and services online through their social media platforms or website. Influencers often make money and receive 'kick backs' by promoting specific financial information or products.

There may be times where influencers provide financial advice, for which they need an Australian Financial Services License (AFSL). As many don't hold an AFSL, they are not legally qualified to recommend financial products. You may not have any recourse if things go wrong or if you receive poor advice by following an unlicensed provider.

If you are investing your hard-earned money, it is important to ensure you do your own research or talk to a licensed adviser. 

financial plan

A plan, usually created with help from a financial planner or adviser, that defines your financial goals and sets out investment strategies to reach your stated goals, with reference to your personal circumstances.

financial planner

A person or authorised representative of an organisation licensed by ASIC to provide advice on some or all of these areas: investing, superannuation, retirement planning, estate planning, risk management, insurance and taxation. May also call themselves a financial adviser.

financial product

A facility that helps you to save, invest, get insurance or borrow money.

financial service

A service dealing with the management of money. It includes providing advice on financial products, dealing in financial products, making a market for financial products, operating a registered scheme or providing a custodial or depository service.

Financial Services Guide (FSG)

A guide that contains information about the entity providing you with financial advice. It should explain the financial service offered, the fees charged and how the person or company providing the service will deal with complaints.

First Home Owners Grant

A grant provided by state governments to first home buyers, to offset the effect of the GST on buying or building a home. For more information see the Government's First Home Owner's Grant website.

First Home Saver Account

A Federal Government initiative that was set up to help people save for their first home. These accounts were abolished from 1 July 2015 and existing first home saver accounts have now been converted to ordinary savings accounts.

fixed interest investment

A type of investment that offers a set rate of interest for a specified amount of time, with the principal repaid at maturity. Covers a broad range of investments, with varying degrees of risk, such as term deposits, government bonds, corporate bonds, capital notes, debentures and income securities.

fixed interest rate

Interest is paid at a fixed rate over the term of a loan or investment. Opposite of variable interest rate.

fixed rate home loan

Allows you to lock in an interest rate on your loan, typically for 1 to 5 years. Protects against interest rate rises but also means you won’t benefit from falling interest rates. Opposite of variable rate home loan.

float

When a company lists on a stock exchange and offers shares to the public for purchase. Also known as an initial public offering (IPO).

floating rate note

A type of fixed income investment where the principal is repaid at maturity but the interest rate is linked to a market interest rate such as the bank bill swap rate. As the benchmark rate changes (usually adjusted quarterly) so does the investor's income. 

foreign transaction fee

A fee that may be charged by credit card providers for purchases, cash advances or transactions that are made with overseas-based merchants or financial institutions, or with Australian-based merchants who process payments overseas.  This fee may still be charged even if the transaction is in Australian dollars.

franking credit

Your share of the tax a company has already paid on the profits you received as a dividend or distribution.

FSG

A guide that contains information about the entity providing you with financial advice. It should explain the financial service offered, the fees charged and how the person or company providing the service will deal with complaints.

fully franked dividend

A share dividend on which the company has already paid tax. This means shareholders are entitled to a credit for the amount of tax the company has already paid. This credit is known as an imputation credit or franking credit.

fund choice

Allows employees to choose the super fund their employer pays their super contributions into.

fund manager

Individual or organisation responsible for investing funds on behalf of a financial institution. See also investment manager.

funeral bond

A capital guaranteed managed fund to accumulate benefits to help meet the future cost of funeral expenses. Funeral bonds have tax and Centrelink advantages.

futures

Legally binding contracts to buy or sell a particular asset, currency or other index, for a specified price on a specified future date.

gearing

Borrowing to invest, such as when you buy a house using a mortgage or buy shares using a margin loan.

General and personal advice

General or personal advice can help you reach your financial goals. General advice does not consider your personal circumstances and is general in nature. Personal advice is more specific and is tailored to your personal situation.

The advice you receive could cover any of these financial products or areas:

• investing
• superannuation
• retirement planning
• estate planning
• risk management
• insurance

Personal and most general advice providers must hold an Australian Financial Services (AFS) licence.

The difference between general and personal advice

General advice

General advice is a recommendation or opinion about a financial product that is not tailored to your personal circumstances. This advice won’t consider your personal circumstances, such as your:

• income
• expenses
• assets
• liabilities
• goals
• risk tolerance

General advice may help you to identify and narrow down your options. But it won’t tell you how to make the best financial decision for your personal situation.

General advice is different to factual information. This information can give you useful facts about a financial product. Examples of factual information may include descriptions of:

• the basic features of a superannuation account
• the fees and interest rates on a new term deposit

Factual information is usually free and available from places like websites, banks and seminars. A licence isn’t needed to provide factual information.

Personal advice

Personal advice is a recommendation or opinion tailored to your personal circumstances. It is more specific than general advice and takes into account your financial situation and goals. Personal advice providers must act in your best interest.

Personal advice can include:

• Simple, single-issue advice — Help with one financial issue. For example, how much to contribute to your super, or what to do if you inherit shares.
• Comprehensive financial advice — Help to develop a financial plan to reach your financial goals. This covers things like savings, investments, insurance, superannuation and retirement planning.
• Ongoing advice — Regular monitoring and review of your financial plan and personal circumstances.

When general advice might be appropriate

You may want general advice if you:

• want to compare or confirm your understanding of different financial products. For example, the difference between a managed fund and an ETF
• are researching and learning about different financial topics
• don't want to spend money on tailored advice

You may be receiving general advice if you:

• were not asked questions about your financial situation, needs and objectives
• are dealing with someone who will not recommend a specific product for you. They will speak generally about it rather than tailoring it to you

When providing general advice, the advice provider must give you a warning. The provider will:

• tell you the advice you’re about to receive is general, meaning it doesn’t take into account your own objectives, financial situation or needs
• prompt you to consider if the advice is appropriate for you before acting on it
• in some cases, provide you with a Product Disclosure Statement if the advice is about a financial product

When personal advice might be appropriate

You may want personal advice if:

• Your situation is complex and you need help to work it all out
• You're going through a significant life event. For example, buying a house, getting married, transitioning to retirement, redundancy, death of a spouse, or illness.
• You inherited a large sum of money.
• You want to outsource your financial affairs.
• You need specific advice on a topic area and have specific requirements. For example, you want income protection insurance but have health issues.
• You want to ensure you're on track to meet your financial goals.
• You need help managing someone else's money. For example, you’re appointed Power of Attorney for someone, or you’re an executor for a deceased estate.

Goods and services tax (GST)

GST is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia. To work out the cost of an item including GST, multiply the amount exclusive of GST by 1.1. To work out the GST component, divide the GST inclusive cost by 11.

government bond

A medium to long term fixed interest investment issued by domestic or foreign governments which pays fixed interest rate (coupon rate) for the term of the investment. The original invested amount (face value) is repaid at the end of the term (maturity). 

government co-contribution

A contribution made by the Australian Government to a person’s superannuation account based on that person's income, source of income and personal super contribution. It is designed to help lower income earners build up their super before retirement.

Green bonds

Green bonds are bonds issued to fund projects that offer climate change and environmental benefits.

Greenwashing

Greenwashing is when an investment fund promotes a product or investment strategy as being more sustainable or ethical than it is. It's marketing spin.

For more information, see Environmental Social Governance (ESG) investing.

growth asset

Assets such as shares and property that not only produce an income but have the potential to grow in value over time.

growth fund

A fund that invests in growth assets. A growth fund is more likely to produce higher returns over the long term but is usually more volatile in the short term.

guarantor

A person who guarantees a loan for someone else. The guarantor is legally responsible for paying the other person's debts if the debtor can't pay them.

hardship variation

A change to the terms of a loan, due to financial hardship, to make the loan easier to manage. The variation could give you more time to pay, or temporarily pause or reduce repayments.

To apply for financial hardship:

1. Contact your lender's 'hardship officer'.
2. Give the details of your loan (account number and the amount you pay).
3. Say that you want to change your loan repayments because you are experiencing hardship.
4. Explain why you are having difficulties making payments. Tell them how long you think your financial problems will continue and how much you can afford to repay.

hedge fund

A fund that pools capital from a number of investors and invests in shares and other securities. It aims to achieve positive returns in both rising and falling markets, while using strategies to reduce the chance of loss. Often uses complex strategies including short selling, derivative contracts, leverage and arbitrage.

hedged

Where a fund manager has used strategies to offset some or all of the impact of currency fluctuations on overseas investment returns.

holder identification number (HIN)

A HIN is a unique number that is issued by the Australian Securities Exchange (ASX) when you become a client of a broker. All shares that you buy through that broker will be connected to your HIN.

You can find your HIN on a CHESS statement. A HIN starts with the letter X and is followed by ten numbers, e.g. X0001234567.

To offer lower brokerage rates, some entities may use an omnibus (rather than an individual) HIN to hold shares. This means investors are not the legal owner of their shares and they have fewer protections (including being able to claim against the National Guarantee Fund) if something goes wrong.

If you hold shares through an omnibus arrangement, be sure to look at the terms of the arrangement to understand how your shares are recorded and how corporate actions like voting rights are handled.

home reversion

Allows you to sell a proportion of the future value of your home while you live there. You get a lump sum, and keep the remaining proportion of your home equity. When you sell your home, you pay the home reversion provider their share of the proceeds.

honeymoon or introductory interest rate

An interest rate offered for a short time at the start of a loan, credit card or savings account. For a loan it is a lower interest rate that will eventually revert back to a standard rate. For savings accounts it is a higher rate that will revert back to a standard deposit interest rate after the honeymoon period.

hybrid security

A financial product that combines features of debt and equity securities and generally pays a fixed or floating rate of return until a specified date. In some cases they can be converted into shares in the issuing company. Includes convertible notes, preference shares and capital notes. 

identity fraud/theft

Using someone else's personal details in order to steal money or gain other benefits by pretending to be that person.

imposter entity

Impersonates a registered Australian business, Australian financial services (AFS) or credit licensee, or a representative or employee of these.

imputation credit

Tax credit passed on to shareholders who receive partially or fully franked dividends. The tax credit is in consideration of the tax the company has paid on its profits before passing those profits on to shareholders.

income producing asset

Any asset that generates an income. For example, dividends are paid on shares, investment properties generate rental income, bonds and bank accounts produce interest.

income protection insurance

Pays part of your lost income if you can’t work because of illness or injury. Most policies offer cover based on your annual earnings in the 12 months prior to your illness or injury. Most income protection policies offer two or five years, or up to a specific age (such as 65). 

Find out more about income protection insurance.

index

A statistical measure of change in the value of a market, asset class or industry sector. The value of an index increases or decreases with changes in the value of the underlying security or sector it's measuring. For example, the ASX All Ordinaries Index measures the change in the overall value of 500 largest companies by market capitalisation listed on the Australian Securities Exchange.

index fund

A managed fund with a portfolio constructed to match or track the return before fees of a particular market index, such as the ASX 200 or the ASX Small Ordinaries Index.

industry fund

A superannuation fund that originally catered to workers from a particular employment industry or industrial award. Most are now open to the general public. They are usually low cost, have limited investment options and return profits to members.

industry sector

A classification used to group companies that are related in terms of their primary business activities. Major industry sectors include consumer discretionary, consumer staples, energy, financials, healthcare, industrials, information technology, metals and mining, telecommunications and utilities.

inflation

The increase in the cost of goods and services over time.

initial coin offering (ICO)

An ICO is a way a project can raise money over the internet. You invest in an ICO by sending money or crypto assets to a blockchain project. In return, you receive digital tokens related to that project.

ICOs are speculative, high-risk investments. Many ICOs are for projects that:

• are experimental
• are at a very early stage of development
• may not have even started yet

ICOs are related to other terms associated with raising funds for blockchain products such as initial exchange offerings (IEOs) and initial decentralised exchange (DEX) offerings (IDOs). IEOs and IDOs occur on exchanges, while ICOs can be made directly by the project developers.

Some projects may take years before they become commercially viable, if at all. A large number of ICOs fail or do not increase in value.

ICOs sound similar to initial public offerings (IPOs). But ICOs may not offer any legal rights and protections. Investing in an IPO means you are investing in an established company or asset, rather than a project.

While ICOs use the internet to raise money they are not the same as crowd-sourced funding. Crowd-sourced funding offers basic investor protections under Australian law.

ICO white papers

There will usually be a 'white paper' that contains information about the ICO and the project it is funding. The white paper typically includes:

• the names and contact details of the people behind the scheme
• information on what they are planning to do with your money

The information in the white paper isn't always accurate. Sometimes the information can be unbalanced or misleading. It may overestimate how profitable the project will be to convince you to invest. Projects can also change after the white paper is published.

The white papers can be very technical. This can make it difficult to understand what your rights and obligations will be after you've bought the ICO tokens.

Read more about cryptocurrencies.

initial public offering (IPO)

When a company lists on a stock exchange and offers shares to the public for purchase. Also known as a float.

insider trading

The trading of financial products while in possession of information, or having received information, that is not generally available to the public. Penalties include heavy fines and imprisonment.

instalment warrant

A financial product issued by banks and other financial institutions that lets investors buy shares (or other securities) over a period of time, making an initial payment and paying the balance later. A form of leverage as it involves borrowing to invest, and investors are charged interest and fees on the outstanding amount but get the benefits of owning the whole investment, such as receiving dividends. 

insurance bond

An insurance bond is a long term investment offered by insurance companies and friendly societies where investors' money is pooled and invested according to the investment option chosen. There are tax advantages for higher income earners if the investment is held for at least 10 years and certain conditions are met.

insurance policy

A written legal agreement that sets out what is being insured and for how much.

insurance premium

Money charged by an insurance company for coverage.

interest

Payment for the use of money over time. You earn interest by lending your money. If you borrow money, interest is the amount you pay to borrow the money. The rate of interest can be fixed or variable. It is usually calculated as a percentage of the amount lent or borrowed. For example on a $10,000 car loan that has an interest rate of 10%, you would pay $1000 interest in the first year.

interest rate

The relationship between the amount of money borrowed or lent and the money paid in return for the use of that money. Usually expressed as a percentage per year.

interest-free deal

Allows you to buy goods or services now and pay for them later. You don't have to pay interest for a set period. You are usually required to make regular repayments during the interest-free period. Any money outstanding at the end of the interest-free period will incur interest, often at a very high rate.

interest-free period on credit cards

The days where you don’t have to pay interest on your credit card purchases. Interest-free periods usually start on the first day of your billing cycle, not when you make a purchase.

international transaction fee

A fee that may be charged by credit card providers for purchases, cash advances or transactions that are made with overseas-based merchants or financial institutions, or with Australian-based merchants who process payments overseas.  This fee may still be charged even if the transaction is in Australian dollars.

intestate

Dying without leaving a will. Your assets will be distributed according to intestacy laws in the relevant state or territory.

investment

An asset bought with the aim of producing an income and/or an increase in value over time.

investment bond

A long term investment offered by insurance companies and friendly societies where investors' money is pooled and invested according to the investment option chosen. There are tax advantages for higher income earners if the investment is held for at least 10 years and certain conditions are met.

investment manager

Individual or organisation responsible for investing and managing the assets of others. See also fund manager or responsible entity.

investment platform

An administrative system for your investments. Platforms offer a range of investments and services, all in the one place. Reporting for all investments is usually in the one report.

issuer

A legal entity that creates, registers and sells securities in order to raise money to finance its operations. Issuers include domestic or foreign governments, companies and investment trusts.

joint account

An account with a financial institution that is in the name of more than one person. Any individual whose name is on the joint account can operate the account; but it is possible to restrict any withdrawals by requiring both people to sign.

joint tenants

When property is held by two or more people together in equal shares. On the death of one joint tenant the property automatically passes to the other joint tenant(s), regardless of what may be set out in the deceased person's will.

lay-by

When goods are paid for over time by payment of a deposit and then regular amounts over a certain period. You cannot take home the goods until you have paid the full price.

lease

A document that grants someone the use of a property for a given period in return for rental payments. The document will specify the terms and conditions of the agreement.

lenders mortgage insurance (LMI)

Lenders mortgage insurance (LMI) protects a credit provider if borrowers are unable to repay their loan. LMI is usually a one-off cost to a home loan borrower, payable when the amount borrowed exceeds 80% of the value of the property. LMI does not benefit the borrower, it only protects the lender.

leverage

The use of financial instruments or borrowed capital to increase potential gains or losses. For example, borrowing money to invest in property or other assets, buying a share in a 'geared' managed fund or investing in derivatives.

liability

A debt or money owed, for example, a bank loan or credit card debt.

life cover

An insurance policy that pays a set amount of money to an insured person’s beneficiaries when the insured person dies. Also known as term life insurance or death cover.

Life insurance policy

A life insurance policy pays a set amount of money to you or your family after an unexpected event, like an illness, injury or death.

limit

The amount of calls, texts and data you can use in your plan each month. If you go over your limit, there is usually an extra charge.

limited recourse loan

A loan used to purchase a single asset or group of assets where the lender's claim on assets is limited to the asset(s) purchased with the loan, if the borrower defaults on the loan.

line of credit loan

Allows you to use a single account for your home loan and everyday spending. Interest is added to the loan each month and repayments are not necessary while the loan is within its credit limit. It allows you access to the equity in your home without having to apply for a new loan.

liquidity

How easily an investment or financial product can be converted to cash. Shares in large publicly listed companies that are regularly traded on the ASX (Australian Securities Exchange) are considered liquid assets, while direct property investments are less liquid, due to difficulties and time delays that may be experienced when buying and selling. Liquid markets have enough trading activity to allow both buyers and sellers to easily transact as they wish.

listed property trust

Trust funds listed on a securities exchange and managed by an investment manager (also known as real estate investment trusts (REITs). May invest in a specific type of property such as residential, industrial, office buildings, shopping centres or hotels, or in a diversified portfolio of real estate assets either in Australia or overseas.

loan to value ratio (LVR)

The amount of a loan as a percentage of the value of the asset it was used to buy. It is calculated by dividing the loan amount by the value of the asset.

For example, if you're buying a $600,000 house and you have a $450,000 loan, your LVR would be 75%.

low-doc loan

A loan that requires less financial documentation to prove income, assets and liabilities than a standard loan. Typically used by self-employed people and small business owners, they are usually offered at higher interest rates and may include terms that restrict borrowers.

managed discretionary account (MDA)

A personal investment account where you own investment assets, such as company shares or units in a managed fund. You give someone else (the MDA provider) the authority to buy and sell investments on your behalf. Financial advisers often use MDAs to manage portfolios for their clients.

How an MDA works

You sign an agreement (MDA contract) with the MDA provider. This gives the provider the discretion to buy or sell investments without having to check with you.

You and the provider agree on an investment program, and they must make investment decisions in line with this.

The investment program sets out what the MDA provider can invest in, and what trading strategies to use. This reflects the investment strategy in the Statement of Advice (SOA) given to you by your financial adviser. Your financial adviser may also be your MDA provider.

The provider must review the investment program at least every 12 months. This is to make sure it continues to be suitable for you.

An MDA may be hosted on an online investment platform. The MDA provider uses the platform to buy and sell assets on your behalf. It also has tax and reporting services.

You can log in at any time to see how your investments are performing.

It's important to compare the benefits to the costs and risks before you invest in an MDA.

Benefits of an MDA

MDAs can be useful for investors who don't have the time or expertise to manage their own investments. They may not be suitable for all investors.

Benefits of an MDA include:

• Fewer decisions — the MDA provider makes day-to-day investment decisions on your behalf. This means fewer decisions for you to make and less paperwork to review.
• Transparency — MDA platforms let you view all the assets you own in the account. You can see fees and charges, and how your investments are performing. Look for an MDA with this feature.
• Ease in transacting — the MDA provider can buy or sell assets to respond quickly to market changes.
• Access to professional managers — some MDA providers use professional investment managers to trade on your behalf.

Risks of an MDA

Risks of using an MDA include:

• Disagreement with investment decisions — the MDA provider may make investment decisions you do not agree with. If it's in line with the investment program, you still have pay for the investment (or reversal costs).
• Changes to your situation — the MDA provider makes investment decisions based on an agreed investment program. If your financial situation changes and you don't update them, the provider could make decisions that no longer suit.
• You could pay more — fees and costs can add up quickly and reduce your investment returns. MDAs may be a lot more expensive than investing directly.

If you're uncomfortable with these risks, or want to be in control of your investment decisions, an MDA may not be right for you.

Costs of an MDA

Check the fees and costs before you invest, as these reduce your investment returns. You can see a list of fees in the Financial Services Guide (FSG) and the Statement of Advice.

Fees may include:

• Adviser service fee — an ongoing fee paid to your adviser for providing advice and arranging your investments.
• MDA service fee — a fee to use the MDA.
• Brokerage fees — a transaction-based fee charged for trading financial products.
• Investment product fees — fees to invest in financial products.
• Platform fees — charged if your MDA is managed via a platform (check the Investor Directed Portfolio Services Guide).
• Exit fees — there may be fees or restrictions when transferring assets to another financial adviser or platform.

managed fund

An investment fund where your money and that of other investors is pooled and used to buy assets such as cash, shares, bonds and listed property trusts. The fund is managed by a fund manager. On these webpages, 'managed fund' is used when talking about managed investment schemes or corporate collective investment vehicles (CCIVs).

margin call

Occurs when the value of an asset falls below the agreed loan to valuation ratio. The lender will ask the borrower to deposit enough money to bring the loan back to the agreed lending ratio.

margin loan

A loan that is taken out to invest in shares or managed funds. The investment is used as security for the loan. Margin calls are possible if the value of the investment falls below a set amount.

marginal tax rate

The highest rate of tax a taxpayer will pay on their income. Find out your marginal tax rate.

market index

A statistical measure of change in the value of a market, asset class or industry sector. The value of an index increases or decreases with changes in the value of the underlying security or sector it's measuring. For example, the ASX All Ordinaries Index measures the change in the overall value of 500 largest companies by market capitalisation listed on the Australian Securities Exchange.

market sector

A group of companies that produce or buy and sell such similar goods that they are in competition with each other. Examples include the mining, retail and technology sectors.

market-linked investment

A pooled investment scheme where the value of the investment depends on the movements of a particular market.

master trust

Allows individual investors to pool their funds so that they can invest in a wide choice of investments, usually at wholesale prices. Typically used by financial planners for reporting convenience. Also known as an investment platform or wrap account.

maturity

The date on which a debt or investment and all outstanding interest payments must be paid in full.

mining tenement

A license, permit or lease providing rights to explore for and/or extract minerals under the surface of an area of land.

money transfer request

When one individual or entity asks another to send them money. See also advance fee fraud.

mortgage

A form of security (usually over real estate) that is used to secure repayment of a debt (usually a home loan).

mortgage broker

A person who matches borrowers to lenders and arranges mortgage contracts between the two parties.

mortgage fund

A type of investment fund where investors' money is on lent (as mortgage loans) to a range of borrowers who use the money to buy or develop properties. It might also be used for other investments (for example, investing in other mortgage funds). In return the fund manager promises to pay investors a regular income. 

mortgage scheme

A scheme that invests in mortgage loans or in companies that lend money for mortgages.

mortgage-backed security

An investment in a collection of loans for which the lender holds a mortgage over the property the loan was used to purchase. The loans are written by a financial institution, then sold to an intermediary, who packages (or securitises) the loans into different groups, based on their level of risk. The packaged group of loans is then offered to investors.

mortgagee

Someone who lends money in a mortgage arrangement.

mortgagee sale

When a mortgagee sells a property to recoup their costs because a mortgagor defaults on their repayments.

mortgagor

Someone who borrows money in a mortgage arrangement.

negative gearing

Borrowing money to invest where the return (rental income) from your investment is less than the borrowing cost. For example, loan repayments and repairs. Some of these costs may be tax deductible.

net asset value (NAV)

The value of assets less liabilities, often expressed as a per unit or per share value. For example, the net asset value of a managed fund or exchange-traded fund per unit would be calculated by subtracting the fund's liabilities from the fund's assets and dividing the result by the number of units on offer.

net worth

The difference between the total value of everything you own (assets), and the total value of all of your debts (liabilities). 

No Negative Equity Guarantee (NNEG)

Protects you from owing more on your reverse mortgage than your home is worth. The NNEG puts a limit on the amount owed.

No-Interest Loans Scheme (NILS)

A community program that provides interest-free loans for individuals or families on low incomes.

non-binding nomination

Guides your super fund trustee on who will get your super if you die. The trustee is not bound to follow these instructions.

non-commutable income stream

An income stream that cannot be converted into a lump sum payment.

non-concessional super contributions

Non-concessional super contributions are payments you put into your super from your savings or from income you have already paid tax on. They are not taxed when they are received by your super fund.

See our tips on contributing extra to super.

non-recourse loan

A type of loan secured by collateral such as property or shares, where if the borrower defaults the lender can only seize the assets put up as collateral for the loan. The lender cannot seek further compensation from the borrower even if the assets used as collateral do not cover the full amount of the loan.

offset account

A transaction account that is linked to a mortgage account. It reduces your interest payable as interest is only charged on the net balance, i.e. your mortgage balance less your offset account balance.

option

A contract between two parties that gives the buyer/seller the right, but not the obligation, to buy/sell an asset, at a set price, on or before a specific future date.

overdraft facility

An arrangement that allows you to withdraw more funds than you have in your account.

overdrawn account

When the limit on a credit card or bank account (including any overdraft facility) has been exceeded.

Over-the-counter (OTC) market

The over-the-counter (OTC) market is where financial products, such as corporate bonds or derivatives, are traded directly between two parties and not on a centralised exchange (such as the Australian Securities Exchange).

passively managed

A 'buy and hold' investment management approach where a fund manager holds a portfolio of assets aimed at generating a return before fees similar to the index it is tracking, such as the ASX All Ordinaries Index or the ASX200 Index. (Also known as an index fund.)

payday loan

A cash advance against your next pay. These short-term loans charge a high interest rate and must be paid back by a certain date.

pension

An income stream that makes regular income payments. Examples include the government age pension or an account-based pension from your super fund.

personal insolvency agreement

Similar to a debt agreement but more structured and formal and costs more. Your property comes under the control of a trustee who must investigate your financial affairs. Your name, some personal details and details of the controlling trustee and creditors meeting must be advertised in a local or national newspaper.

personal loan

A low-value loan for personal use such as to buy a car or take a holiday. These loans are usually not secured by an asset and are usually payable over 2-7 years.

phishing

Emails or text messages that attempt to trick you into giving out your personal information such as usernames, passwords or banking details.

plain vanilla option

A simple, standard type of option, with an expiration date, a strike price, and no additional features.

PoA

A document that appoints someone to act on your behalf in a legal or business matter. A Power of Attorney (PoA) may be general or specific and may be unlimited or limited to a specific act. It is different to an enduring power of attorney.

ponzi scheme

A type of fraud that uses money from new investors to make interest payments to earlier investors. The schemes typically offer high rates of return and fall apart when no new investors can be found.

portfolio

The collection of assets held by an investor. Can include shares, fixed interest, derivatives, property, collectables, managed investments and cash.

Power of Attorney

A document that appoints someone to act on your behalf in a legal or business matter. A Power of Attorney (PoA) may be general or specific and may be unlimited or limited to a specific act. It is different to an enduring power of attorney.

premium

In relation to an insurance contract, it is the price charged by an insurance company for providing the insurance cover.

preservation age

The age at which you can access your super. This is between 55 and 60, depending on when you were born. You must also meet a condition of release. 

Find out more about preservation age and getting your super.

preserved benefit

A super benefit that remains in a super fund until the member reaches preservation age and, in most instances, retires from the workforce.

price earnings ratio (P/E ratio)

A financial ratio that can be used to work out whether the price of a share is over or undervalued compared to its competitors. To work out a P/E ratio, the current price of the share is divided by the earnings per share (EPS).

price sensitive announcements

Information that is expected to have a material effect on the price or value of the entity's securities.

primary card holder

The individual in whose name a credit card account is created. You are solely liable for all transactions on the account, including any secondary cards.

principal

The original sum of money invested, or the amount borrowed or still owing on a loan.

probate

A document issued by a court certifying the validity of a will and authorising the executor to administer the estate in accordance with the provisions of the will.

product disclosure statement (PDS)

A document that financial service providers must provide to you when they recommend or offer a financial product. It must include information about the product’s key features, fees, commissions, benefits, risks and the complaints handling procedure.

property development

The business of buying land or property and developing or improving the asset for the purpose of selling at a profit.

property trust

A trust fund, managed by an investment manager who invests in a range of properties, including residential, industrial, office buildings, shopping centres, hotels and other specialist properties. If the trust is listed, units can be bought and sold on a stock exchange. Income is generated by the assets of the trust and unit values will reflect the value of the trust assets.

prospectus

A document issued by a company that wants to raise money from the public by offering equity (shares) or debt (bonds) securities in the company or a trust. It must contain all the information needed to make an informed decision about investing in the company.

public trustee

Government agency or business that provides professional and independent services such as making wills, acting as an executor in deceased estates, managing trusts and Powers of Attorney.

pump and dump scam

'Pump and dump' activity occurs when a person buys shares in a company and starts an organised campaign to increase (or 'pump') the share price. They then sell (or 'dump') their shares and make a profit, while the other shareholders suffer financial losses as the share price falls.

People running a 'pump and dump' often use social media and online forums to create a sense of excitement about a stock or to spread false news about the company's prospects. This excitement and interest artificially drives the price up as they lure investors.

Pumping shares for profit may be market manipulation, which is illegal. Investors caught up in market manipulation may face charges. All misconduct should be reported to ASIC. 

put option

An option contract that gives you the right to sell (but does not lock you into selling) the underlying asset at a specified price, at or before a certain time in the future. You would use a put option when you expect the price of an asset to decrease.

pyramid scheme

Illegal form of multi-level marketing where you receive benefits for recruiting others to join the scheme. Most of the income is earned by recruiting others, rather than selling the good or service.

Record of Advice (ROA)

A simple document that confirms the advice received from a licensed financial planner or adviser. Similar to a Statement of Advice (SOA) but shorter and less formal. Often given to existing clients to confirm changes to, or implementation of, advice provided in a previous SOA.

redraw facility

Gives you access to any extra money you have deposited into your home loan.

refinance

When you replace or extend an existing loan with funds from either the same or a different bank or financial institution.

regulatory risk

The risk that changes in government policy or regulation may affect your benefits e.g. changes in superannuation policy. Changes typically happen after elections or around the time of the Federal Budget. See also taxation risk.

rent to buy

A purchasing arrangement where you rent an item like a laptop, TV or fridge for a period of time, such as three years. At the end of that period, you pay an agreed amount to buy the item. This is stated in the agreement. You do not own the item until you’ve made all your payments. This is different from a consumer lease where, at the end of the lease, you don’t own the item. Not to be confused with rent to buy home ownership schemes, which are high risk and may target people ineligible for standard home loans.

rental bond

Deposit paid by a tenant to the landlord when renting a property. It's a form of security for the landlord in case you damage the property or owe rent when you move out. The amount varies between different states and territories, but is usually equivalent to at least 4 weeks rent.

renter’s insurance

Insurance cover for the contents of a rental home.

responsible entity

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

retirement savings account

An account offered by financial institutions that is used to save money for retirement. These are simple, low cost, low return accounts.

return

The amount of money your investment earns.

reverse mortgage

A type of loan often used in retirement as a way for people to access the equity in their home. The loan amount depends on your age, the value of the home and how it is taken (lump sum, regular payments or draw down as needed). Interest is added to the loan and compounds. The loan does not have to be repaid until the borrower moves out or the house is sold, usually as part of a deceased estate.

reversionary beneficiary

The person who will receive the balance of your superannuation income stream after you die. This could be your spouse, child or other dependant.

reward scheme

Offered by credit card providers or retailers, whereby you receive reward points depending on how much you spend. Reward points can then be exchanged for goods and services. Credit cards that offer rewards usually come with higher annual fees and interest charges.

risk

The possibility that your investment may fall in value or earn less than expected.

risk tolerance

The degree of uncertainty you are prepared to accept in relation to investment returns, in particular the extent to which you are prepared to experience a negative investment return while trying to achieve positive investment returns.

S&P500

The S&P500 is a stock market index that measures the performance of 500 largest companies, by market capitalisation, listed on exchanges in the United States.

salary sacrificing

When you and your employer agree to pay a portion of your pre-tax salary as an additional contribution to your superannuation. This can be a tax-effective strategy and usually suits middle to higher income earners.

savings account

A deposit account held at a bank or other financial institution that offers a higher interest rate than most basic transaction accounts. Account holders can usually access their account at any time.  

secondary card

An additional credit card given to a person you have nominated where any money they spend will be borrowings against your credit card account. You are liable for transactions on both cards.

secured loan

A loan that is backed by an asset. The lender may sell the secured asset to get its money back if you cannot repay the loan. Opposite of unsecured loan.

secured note

A type of fixed interest investment that has a first ranking security interest over other property, for example a debt. Issued by companies as a way of raising capital whereby they promise to pay a fixed rate of interest and repay capital at a date in the future. 

security

In relation to financial assets, a security is an investment such as shares or bonds which can be traded in financial markets.

security for a loan

An asset that is put up to guarantee a loan. If the loan is not repaid, the lender may sell the asset to get its money back. See also mortgage.

self-managed super fund (SMSF)

A private super fund you can manage yourself. SMSFs are regulated by the Australian Taxation Office and can have up to six members. All members must be trustees to ensure they are fully involved in the decision-making of the fund.

senior debt holder

A holder of a debt security such as a corporate bond or secured note, in which the debt holder has priority over unsecured (subordinated) debt holders in the event that the company is wound up.

settlement

When the title or legal ownership of a financial product, such as shares or ETFs, is exchanged for money. A broker, or an agent of the broker, handles settlement.

share

A share is part ownership of a company. Shares are also known as equities or stocks. Shareholders are entitled to dividends which represent their portion of the company's profits.

share fund

A managed fund in which the investment manager invests in range of shares to satisfy a specific investment goal, such as maximising capital growth, dividend income or franking credits. May focus on a specific geographic region or industry sector.

short selling

The practice of selling a security or commodity that you do not own. You borrow the commodity or security from a third party (usually a broker) and immediately sell it to a buyer. You then buy identical securities back at a later date, to return to the lender. This is a speculative investment, made when you believe the price of the security is going to fall and therefore you will make a profit. Find out more about short selling on our hedge funds webpage.

sophisticated investor

A person with a certificate from a qualified accountant certifying they have a prescribed net asset or gross income level. This gives them an exemption under the Corporations Act 2001. That means they can buy financial products without a regulated disclosure document such as a prospectus or product disclosure statement.

A person holding a certificate is a:

• ‘sophisticated investor’ for the purposes of Chapter 6D (if offered debt or shares), or
• ‘wholesale client’ for the purposes of Chapter 7 (if offered a financial product, other than insurance, superannuation or a retirement savings account product or service) and the financial product is not used in connection with a business

To be eligible for a certificate, you must have:

• a gross income of $250,000 or more per year in each of the previous two years, or
• net assets of at least $2.5 million (reg 6D.2.03 and reg 7.1.28)

Sovereign debt

Sovereign debt is the amount of money a country’s government has borrowed. Governments raise funds by issuing/selling debt securities, such as Australian Government Bonds (AGBs).

speculative investment

An investment that has the possibility of making an extraordinary profit but also a high possibility of losing most or all of an investor's initial investment.

stamp duty

A state tax imposed on certain transactions, such as car registrations, mortgages and property transfers.

standard deviation

Measures the dispersion of a set of data from its average. The higher the standard deviation the wider the spread of data. For investment returns, a higher standard deviation indicates a wider range of returns which indicates more volatility in a particular market.

stapled securities

When two or more securities are contractually bound together so that they cannot be bought or sold separately.

stapled super fund

From 1 November 2021, when you start a new job, your employer will pay your super into your existing super fund if you do not choose a different fund. That existing fund is known as a ‘stapled super fund’ because it's connected to you and follows you as you change jobs. This helps you avoid having multiple super funds and paying additional insurance premiums and fees.

How stapling works

If you don’t choose a super fund, your employer will contact the ATO to see if you have a stapled super fund. The ATO will notify you about your employer’s inquiry and any information they give your employer.

Your employer will pay your super contributions into your stapled super fund. If you have more than one existing super fund, the ATO has rules for deciding which fund should be selected as your stapled fund.

The ATO has more about how a stapled super fund is selected. 

You can change super funds

At any time you can choose to change or consolidate your super.

You can compare super funds by using the ATO's YourSuper comparison tool, an online list comparing MySuper products.

You can also get independent financial advice from a licensed financial adviser. 

Check your insurance

It's important to make sure the insurance through your stapled super fund is right for you.

The insurance offered by super funds varies between funds and may not be suitable if you change jobs or your personal circumstances change. For example, if you change from a high-risk job to a lower-risk job, and you stay with your stapled fund, you may be paying for more insurance cover than you need.

If you're not sure about your level of cover or how much you're paying, you can ask your fund. 

See insurance through super for more information.

Statement of Advice (SOA)

A document that sets out the advice given to a consumer by their licensed financial planner or adviser. It must include the basis on which the advice is given, details of the providing entity, and information on any payments or benefits the adviser or licensee will receive.

statutory warranty

A guarantee required under law that says traders and manufacturers must ensure their products are suitable for the purpose for which they are supplied.

stocks

A stock is part ownership of a company. Stocks are also known as equities or shares. Shareholders are entitled to dividends which represent their portion of the company's profits.

store card

A form of credit card offered by large retailers. Store cards are used like regular credit cards but usually charge much higher interest rates.

strata levy

A fee paid by property owners for the management of the common property of buildings established under a strata title.

strata title

A building, flats or units divided into blocks, each of which has a title and common property that is part of the land and building in the strata plan.

subordinated note

A type of debt security in which the note holder's claim to the company's assets ranks behind those of secured note and senior debt holders if the company is wound up.

Super Consumers Australia's retirement savings targets

Super Consumers Australia's Retirement Savings Targets are a tool to help you work out how much super you need to save for your retirement.

The targets offer savings goals that are based on your age, whether you're single or in a couple, and how much you want to spend. The targets assume you own your own home outright or are not paying rent or a mortgage.

Savings targets for pre-retirees (aged 55-59)

*On top of income from the Age Pension

Savings targets for retirees (aged 65-69)

*On top of income from the Age Pension

For more information see Super Consumers Australia's Retirement Savings Targets.

superannuation (super)

Money that you and your employers put into a special fund during your working life to provide you with money to live on when you retire.

superannuation guarantee (SG)

The minimum amount that your employer must pay into your superannuation fund. It is currently 11% of your gross salary.

Sustainable investing

Sustainable, or sustainability-related, investing is when an investment product or strategy considers factors relating to sustainability, such as environmental, social or governance (ESG) matters.

For more information, see Environmental Social Governance (ESG) investing.

swaps

In a swap agreement, a counterparty agrees to pay the difference between the value of the ETF's assets and the value of the assets or index it is designed to track. When a synthetic ETF enters a swap agreement, this creates counterparty risk.

takeover

When one company makes a bid to take control of another company.

tax file number

A unique number assigned to taxpayers by the Australian Taxation Office for tax administration. You need to quote the number to employers, benefit and allowance providers, banks and other investment bodies.

taxation risk

The risk that changes to the tax system could affect the outcome of your investments. With regard to your superannuation, it is the risk that changes to the way superannuation is taxed could affect the amount of super earnings. See also regulatory risk.

tax-driven scheme

A scheme that attracts investment mostly for the tax benefits it offers, such as an agricultural or film scheme. An investment is said to be ‘tax-effective’ if investors pay less tax on it than they would have on another investment that gives the same return.

tax-free threshold

The level of annual income, as set by the Australian Taxation Office (ATO), on which you do not have to pay income tax. See ATO: Individual income tax rates.

Telecommunications Industry Ombudsman (TIO)

A free independent service to help resolve telephone and internet complaints.

tenancy

A person’s right to occupy land or buildings as per the terms of a lease or other agreement.

tenants in common

Where two or more people hold shares in a property. Each owner has the right to deal with their share of the property separately to the others. Tenants in common may pass on their share to a nominated beneficiary in their will.

term

The length of time a loan or an investment will run for.

term deposit

An account with a financial institution where money is deposited for a set period of time. The interest rate is usually fixed for the term of the deposit and is generally higher than a transaction account but not always higher than some other at-call high interest savings accounts. Also known as a fixed deposit.

third party property insurance

A type of car insurance that covers damage you cause to other people's property (e.g. their car or home), as well as your own legal costs.

third party, fire and theft insurance

A type of car insurance that covers damage to other people's property, and provides limited cover for damage to your own car, as a result of theft or fire.

Today's dollars

When an amount is expressed in today’s dollars, it means the result has been adjusted for inflation (the rising cost of living) and for the cost of rising community living standards.

This term is often applied to results in financial calculators. This is done to allow calculator users to make a meaningful comparison with current wage levels. If results were shown in future dollars instead, they would be larger.

For example, if your current income is $50,000 and a calculator provides a result of $25,000 in today’s dollars, think of the result as being equivalent to 6 months pay at a future time.

ASIC’s guidance to calculator providers through ASIC Corporations (Generic Calculators) Instrument 2016/207 is that projection-based calculators should present results in today’s dollars where an estimate is provided over two years or more.

total and permanent disability (TPD) insurance

A type of life insurance that helps cover the cost of rehabilitation, debt repayments and the future cost of living if you are totally and permanently disabled. Each insurer has different definitions of what is and isn't considered to be permanently disabled, so always read the fine print so you know how the policy defines the cover.

transaction account

An account with a financial institution where your money is readily available for day-to-day transactions.

transaction fees

Charges for any account transactions you conduct i.e. withdrawals, deposits, transfers.

transfer balance cap

A lifetime cap on the amount of super that you can transfer into 'retirement phase accounts' to pay a tax-free income stream.

transition to retirement scheme

A scheme that allows you to reduce working hours in the lead-up to retirement without reducing take-home pay, or to continue working full-time and make significant tax savings by salary sacrificing heavily into super and supplementing take-home pay with a super pension.

trauma insurance

A type of life insurance that provides cover if you are diagnosed with a certain illness that will make a significant impact on your life, such as cancer or a stroke. Trauma insurance pays a set amount that can be used for things like medical costs, repaying debt, or adjustments to housing or lifestyle changes.

trustee

A person or company that holds or administers assets for the benefit of someone else.

trustee (super fund)

People or a company appointed to manage a super fund on your behalf.

underinsurance

When there is not enough insurance to cover the value of the insured property. So, if something goes wrong, your insurance may not be enough to replace or repair property that is lost or damaged.

unhedged

An investment fund where no steps have been taken to limit the effect of currency fluctuations on overseas investment returns.

unit price

The value of a company or investment expressed as a single unit. A unit is similar to a company share.

unit trust

A legal structure that holds assets for the benefit of unit holders. A trustee administers the trust, makes decisions about trust assets and is responsible for distributing income and capital according to the number of units each investor holds. Any profits made by the trust must be distributed to unit holders at the end of the financial year.

unlicensed (legacy)

An unlicensed entity. This entry is carried over from the ‘companies you should not deal with list’, which was discontinued in 2023.

unlicensed entity

Offering financial services (including financial products) to people in Australia without a licence. They do not hold an Australian financial services (AFS) licence or Australian credit licence from ASIC.

unlisted mortgage scheme

A mortgage scheme that is not listed on a public market, such as the Australian Securities Exchange.

unlisted property trust

A property trust that is not listed on a public market, such as the Australian Securities Exchange.

unsecured loan

A loan for which no asset has been used as security. The interest rate is usually higher than for a secured loan as there is a higher risk to the lender of not getting their money back.

unsecured note

A type of fixed interest investment issued by a company whereby it promises to pay regular interest payments and return the capital at the end of the investment term. There is no security offered for the investment. Find out more about unsecured notes.

unsolicited calls

An unexpected call or visit by an unknown person, trying to sell something.

variable interest rate

Where consumers receive interest on an investment or pay interest on a loan at a rate that may go up or down during the term. Opposite of fixed interest rate.

variable rate home loan

A home loan where payments increase or decrease in line with rises or falls in official cash rates. Opposite of fixed rate home loan.

vendor finance

Where the seller of a house or other asset, such as a car, offers to lend you money to buy the property or asset as part of the sale.

volatility

The extent to which the return on an asset fluctuates over time. It is measured by the rate at which the price of a security moves up and down. The higher the frequency of movement in the price of a security, the higher the volatility and the greater the risk.

warrant

A financial product issued by a bank or other financial institution which gives you the right to buy shares (or currency, an index or a commodity) at a set price within a specified time and traded on the Australian Securities Exchange.

warranty

A document which guarantees that a product will remain in working order for the term of the warranty. It contains information on how the seller or manufacturer will repair, replace or refund the product if it is defective.

will

A legal document that sets out how you want your assets and other belongings to be distributed when you die.

wrap account

Allows managed investments to be combined or ‘wrapped’ into a single account. Generally used by financial planners for convenience. See also investment platform and master trust.

yield

The rate of return on an investment.