
To help you out we have created this guide to the basics. Do not forget to add it to your bookmarks for future reference!
If you invest in company ‘shares’, also called ‘equities’, this usually means you are buying a tiny portion of a company, which will use your money to do business.
You can buy equities in almost every big company you’ve heard of. When you’re an owner, you have ‘equity’ in the company.
If the company you’ve bought into becomes more profitable, then your equities will likely grow in value and the company might pay you dividends. If the company became less profitable, the value of your equities might go down.
Bonds are simply loans.
- If you buy a €100 5-year bank bond at 5%, you’ve given the bank a loan of €100.
- In return, it will pay you 5% (€5) every year for five years, then repay your initial €100 at the end of five years.
- The annual interest a bond pays is also known as ‘income’ or the ‘coupon rate’.
Bonds from companies or governments with high credit scores (called credit ratings) are seen as often see as safer, more predictable investments but as with all investments, nothing is guaranteed.
This is the area of investing concerned with assets that pay a predictable, or ‘fixed’ rate of return. However, as with all investments, nothing is guaranteed.
Government bonds, which are loans to governments, and corporate bonds, which are loans to companies, make up the bulk of this investment market.
The idea of a fund is to group different investments under one purpose. This means you don’t need to buy individual equities, bonds and different investments, instead you can choose a fund that has a selection of everything you’re looking for.
Think of it as a shopping trolley of investments.
- A global technology fund, for example, might own shares in many different technology companies across the world.
- A multi-asset fund will hold a variety of investments, such as shares, bonds and real estate.
- A target-date fund will focus on tailoring investments to a set timeframe.
Say you’ve bought a share in a company; whenever it makes a profit, you are entitled to some of this profit, paid as a ‘dividend’.
When you own equities, you may choose to have dividends paid out to you as cash, or most companies may also let you invest your dividends into more equities – usually at a discount.
How does this work for fund owners?
If the fund you’ve bought into invests in, for example, a soft drinks company and is paid a dividend, this dividend can be passed on to you as money, if you’ve bought an ‘income’ fund. Alternatively, the fund will reinvest the dividend in more equities of the company, if you’ve bought an ‘accumulation’ fund.
The aim of an income fund is to provide an investor with regular income. For this reason, this type of investment is chosen for its ability to pay interest or regular dividends.
This type of fund is intended to grow in value. The underlying investments are chosen for their growth potential. Interest or dividends paid out by the underlying investments are invested in more assets.
Financial companies that invest your money usually charge for their services by taking a fee that is a small percentage of the money you have invested.
Charges vary between different funds and different types of assets. Information about charges is available in the prospectus and PRIIPS KIID of the fund.
‘Active’ funds with a management team regularly monitoring, buying and selling investments and trying to outperform the market tend to charge higher management fees.
‘Passive’ funds, which use a computer to track a certain area of the market, tend to have different fee structures.
An index measures the performance of a group of one type of assets. One of the best-known indexes is the S&P 500 index, which tracks the performance of the biggest 500 companies in the US.
There are indexes for almost every kind of investment and this has led to the rise of index investing, where a computer can track the performance of an index.
This is a reference point, usually an index, that fund managers and investors can use to see how funds are performing.
Active funds with management teams will usually show their investors how they have performed compared to a relevant benchmark.
For example, a fund investing in major US companies will show how they have performed compared to the S&P 500 index.
When your money earns interest, soon your interest will also earn interest, which means that your money will grow more quickly. Over time, this effect will become more important to the growth of your money.
Compound interest works on debt too. For example, a credit card adds interest to your debt every month and if that interest is not paid off, then you will be charged interest on your interest, causing your debt to grow.
An ETF is a fund, traded on an exchange, that tracks the performance of a market, by investing in a range of assets intended to replicate the market index holding.
ETFs are designed to give you a low-cost, transparent and easy way to invest in a wide range of markets, represented by major stock market indices are designed to give you a low-cost, transparent and easy way to invest in a wide range of markets, represented by major stock market indices.
An alternative fund aims to give investors another kind of opportunity to add to their portfolio, one that offers a wider range of diverse investments.
The aim is to offer an alternative to traditional asset classes such as equities and bonds. Examples include private equity, corporate loans and commercial real estate.
Find out more
We’ve given you some basic terminology here to get you started. You’ll find lots of other helpful material on these pages designed to help you with the first steps on your investment journey.
Important Information
Unless otherwise stated, all information contained in this webpage is from Amundi Asset Management S.A.S. and is as of 8 May 2024 . Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Neither Amundi Singapore Limited nor Amundi Asset Management S.A.S. accepts any liability whatsoever, whether direct or indirect, that may arise from the use of information contained in this webpage. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.
Date of first use: 10 July 2024
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