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.
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.
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.
Actively Managed An investment management approach where a fund manager buys and sells investments regularly to outperform a specific market index, such as the ASX200.
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.
Age Pension A regular, fortnightly payment from the government when you reach pension age. You must meet certain criteria to get the pension.
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.
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.
Asset Something you own! It may be a financial item like money, bonds, shares or a bank account, or even a house, land or 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.
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).
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.
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.
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, efficient and competitive financial system.
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 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.
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 superfund are the members, and their dependants (if the member dies).
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).
Break Free You may be charged a ‘break’ fee if you break your fixed rate mortgage. Generally, the more interest rates have come down since you took on the fixed rate loan, the higher the break fee will be.
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.
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.
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 clauses 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 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.
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 contribution to their super. The co-contribution amount depend on an individual’s income and how much they contribute.
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.
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.
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 deductible 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. Example 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 an illness, death, disability or involuntary unemployment.
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 a 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 CF.
Conveyancer A conveyancer helps you meet all the 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 condition 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 issues by a company to investors to raise money to finance its business activities. Sometimes 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.
Coupon Rate The annual interest rate on a bond, paid by a bond issuer, relative to the face value of the bond.
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 you 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.
Credit Guide Anyone engaging in credit activities (for example, by providing credit or credit assistance to you) must give you a credit guide.
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.
Creditor A person to whom you owe money.
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.
Debt Agreement A legal agreement for the repayment of unpaid debts that is less forma 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 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 property. It guarantees that the buyer will pay the full deposit by an agreed date.
Depreciation A decrease in the value of an asset.
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.
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 profit 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.
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.
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.
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.
Establishment Fee A one-off fee which may apply to set up a personal or other loan.
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).
Executor A person specified in a will, or appointed, to administer the will.
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 Advisor 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 Services Guide 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.
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.
Gifted Funds Money is given to a borrower to help with a home purchase.
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).
Green Bonds Green bonds are bonds issued to fund projects that offer climate change and environmental benefits.
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.
Guarantee An agreement in writing to meet the financial obligations of another party if they fail to meet their contractual obligations.
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.
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.
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.
Home Equity Loans Allows you to borrow money against the equity on your existing home to put towards a deposit to buy a new home or an investment property.
Home Loan Deposit The amount of money put into a bank account or left with a person or company to secure the purchase of a home.
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 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.
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 Statement Representation of all income and expenditure of a business or person, usually for a 12 month period.
Inflation The increase in the cost of goods and services over time.
Insolvency The inability of a business or person to repay their debts even after the sale of assets.
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.
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.
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.
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.
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.
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.
Loan to Value Ratio 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%.
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.
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 or 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-linked Investment A pooled investment scheme where the value of the investment depends on the movements of a particular market.
Maturity The date on which a debt or investment and all outstanding interest payments must be paid in full.
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.
Mortgagee Someone who lends 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 Worth The difference between the total value of everything you own (assets), and the total value of all of your debts (liabilities).
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-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.
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.
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).
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.
Power of Attorney (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.
Pre-approval The home loan amount that a lender agrees in principle to offer you, subject to certain conditions.
Principal The original sum of money invested, or the amount borrowed or still owing on a loan.
Principal and Interest Loan A loan in which both principal and interest are paid with each repayment during the term of the loan.
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.
Redraw Facility Gives you access to any extra money you have deposited into your home loan.
Refinancing When you replace or extend an existing loan with funds from either the same or a different bank or financial institution.
Renegotiate A loan such as a home mortgage, that has been modified by the lender prior to its full repayment.
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.
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.
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.
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.
Security In relation to financial assets, a security is an investment such as shares or bonds which can be traded in financial markets.
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.
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.
Split Loan A loan that includes both fixed and variable components.
Stamp Duty A state tax imposed on certain transactions, such as car registrations, mortgages and property transfers.
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.
Strata Levy A fee paid by property owners for the management of the common property of buildings established under a strata title.
Superannuation 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 11.5% of your gross salary.
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.
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.
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.
Trust A person or company that holds or administers assets for the benefit of someone else.
Trustee People or a company appointed to manage a super fund on your behalf.
Unconditional Approval This is confirmation that your lender has approved your full home loan application and will lend you the money.
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.
Unlicenced 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.
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.
Valuation An assessment of the current and/or future value of a property. Usually, the assessment will be of the property’s market value. Lenders generally require a professional to undertake some form of valuation of the property that is securing the loan.
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.
Yield The rate of return on an investment.
Note: All definitions are current as at January 2025 and sourced from Money Smart and Specialist Mortgage Home Loan Glossary.
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