Mutual Funds Glossary A - C
A
ACH - Automatic Clearing House
Automated Clearing House (ACH) is the electronic funds transfer network in the U.S. that allows direct deposit of money between your mutual fund account and your bank account. Your bank or credit union must be an ACH participant to allow such transfers.
Alpha
A measure of risk adjusted performance, based on characteristics that are specific to the particular security. Alpha mathematically estimates the amount of return expected from an investment after taking into account the relative volatility (as measured by beta) associated with the investment. As an example, an alpha of 1.25 indicates a security is expected to rise 25% in value in a given year, if the relative stock market return and the security's beta (measure of volatility) were flat (1.00). An investment whose price is low compared to its alpha is considered undervalued and a good investment choice. Alpha is typically measured over a 36-month period.
AMT - Alternative Minimum Tax
A tax regulation created to ensure that high-income inpiduals, corporations, trusts, and estates pay at least some minimum amount of tax, regardless of deductions, credits or exemptions. It operates by adding certain tax-preference items back into adjustable coupons.
ADR - American Depository Receipt
Receipts issued by a U.S. depository bank, representing shares of a foreign-based corporation. ADRs allow Americans to purchase shares of foreign stock, and are available for hundreds of securities from many countries. ADRs are subject to the same economic risks as any foreign investment.
AMEX - American Stock Exchange
A stock exchange based in New York City. Issuers of stocks and bonds traded on the AMEX tend to be smaller than companies whose securities trade on the New York Stock Exchange. The AMEX also trades some index options and interest rate options.
Asset Allocation
An investment strategy that seeks to strike a balance between risk and reward by investing specific percentages of a portfolio across different asset classes (including stocks, bonds, cash and other investments vehicles as appropriate).
Assets Under Management
The total value of assets that an investment company, mutual fund, hedge fund, portfolio manager or other entity manages and administers for itself and its customers.
Automatic Investment Plan (AIP)
A program where an investor makes regular purchases of a set dollar amount into a mutual fund account, debiting the money directly from a savings or checking account.
B
Back-End Sales Load
A sales charge or commission paid when an inpidual sells an investment, such as a mutual fund or an annuity (the % charged typically declines over time.) It is also referred to as a redemption fee or contingent deferred sales charge.
Balanced Fund
A fund that combines common stock, preferred stock and bonds in a portfolio in an effort to minimize risk.
Basis Point
One-hundredth of a percentage point (0.01 percentage points).
Bear Market
A market condition exhibited by a prolonged period of declining price movement. For stocks, an overall drop of 20% or more generally defines a bear market.
Benchmark
A standard, such as the S&P 500 Index or Dow Jones Industrial Average, against which investment performance is measured.
Beneficiary
A beneficiary is an inpidual or entity named by an account holder to receive account proceeds after their death, or one who has that status under the account's default provisions.
Beta
Beta is used to measure the volatility of a security in relation to that of the stock market as a whole. Any security with a beta higher than one (1.0) is more volatile than the relative market index, while any security with a beta less than one (1.0) is less volatile than the index. Beta is typically measured using data over a 36-month period. It is useful in providing a measurement of a security's past volatility relative to a specific benchmark or index, but it is important to verify that the most relevant benchmark is used.
Bond
A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The federal government, states, cities, corporations, and many other types of institutions sell bonds. A bond is generally a promise to repay the principal along with interest on a specified date (maturity).
Bond Fund
A mutual fund that invests primarily in municipal, government or corporate bonds. Bond funds may also be composed of international bonds or high yield or "junk" bonds.
Breakpoint
In mutual funds, this is the dollar amount of investments that must be met in order for the purchaser to be eligible for a reduced sales charge.
C
Capital Appreciation
An increase in the value of an asset, such as mutual fund shares. Capital appreciation is the investment objective of mutual funds that purchase securities whose value is expected to rise.
Capital Gain
The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain.
Capital Gains Distribution
A payment to investment company shareholders of profits realized on the sale of its securities. Equity funds usually pay out these amounts once a year, typically in December, while bond funds often include capital gains in their monthly distributions. Many funds allow automatic reinvestment of capital gains, instead of distribution.
Closed Fund
A mutual fund that is no longer issuing shares.
Commission
The fee paid to a broker for executing a trade. This fee is typically based on the number of shares traded.
Common Stock
Securities representing equity ownership in a corporation, providing voting rights and entitling the holder to a share of the company's success through dividends and/or capital appreciation. In the event of liquidation, common stock holders have rights to a company's assets only after bondholders, other debt holders, and preferred stock holders have been satisfied.
Consumer Price Index (CPI)
A measure of the average change over time in the prices of a fixed "basket" of goods, such as food, transportation, shelter, utilities, clothing, medical care and entertainment. The U.S. Department of Labor's Bureau of Labor Statistics publishes the CPI. It is used as a guide for cost-of-living adjustments and as an indicator of inflation.
Contingent Deferred Sales Charge (CDSC)
A fee assessed when shares are redeemed from certain funds. This contingent fee usually decreases or expires the longer your hold the fund's shares. For Transamerica Mutual Funds, shares may be subject to a CDSC. Dividends and capital gains are not subject to the sales charge. There is no charge on any increase in the value of your shares. Transamerica Funds will always use the first in, first out (FIFO) method to fulfill redemption requests. If the shares are worth less than when they were bought, the charge will be assessed on their current, lower value. In some cases, the sales charge may be waived.
Cost Basis
The original price of an asset, usually the purchase price, used to determine capital gains when the asset is sold.
Custodial Account
An account created for a minor by a custodian who is responsible for making securities transactions and managing cash or other property gifted to the minor, under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). When the minor reaches the age of termination (usually 18 or 21), he or she has full discretion over the account, unless the account is set up in a trust controlled by the parent.
Custodian
Bank or other financial institution that retains custody of certificates and other assets of a mutual fund, inpidual, or corporate client.
CUSIP Number
A number issued by the Committee on Uniform Securities Identification Procedures (CUSIP) used to identify stocks and registered bonds.
