FINANCE GLOSSARY

Accident Insurance

Accident insurance provides a payout to your family upon total permanent disability and death caused by accidental causes only. There is usually a fixed duration for the coverage and the policy will expire at the end of the agreed term of upon claims. There are additional benefits that can be added on to provide extra coverage, such as reimbursing medical costs incurred due to an accident.

Active Investing

Active investing refers to a type of investment strategy where investors regularly buy and sell investments based on their analysis. These investors tend to conduct their own research by reading up on the companies’ business models, and taking the time to read their financial reports to determine if they are worth investing in.

Annualised Returns

An annualised rate of returns are returns over a period scaled down to a 12-month period. A 12% annualised return refers to 12% earned every year.

A 3-year 20% annualised return means that money invested 3 years ago in the fund has grown 20% every year. This doesn’t mean 20% overall but instead 60% in total over the whole period.

Annuity

A form of insurance or investment providing the investor with a lifelong stream of money given annually or monthly.

Assets Under Management (AUM)

Assets under management (AUM), sometimes called funds under management, is the total market value of all the investments/assets that a person or entity manages on behalf of clients. This definition and formula varies by company.

Asset

An asset is something that has monetary value. This could be something physical such as cash, land, houses, jewellery or non-physical such as copyrights, patents, or trademarks.

Backtesting

Backtesting is a method to assess how a trading strategy or model would play out using historical data. Backtesting assesses the viability of a trading strategy. The concept is that what strategy worked well in the past, is likely to work well in the future—and conversely one that performed poorly in the past, is likely to do similarly in the future.

Central Provident Fund (CPF)

Singapore’s Central Provident Fund (CPF) is a comprehensive social security system that enables working Singapore Citizens and Permanent Residents to set aside funds for retirement. It also addresses healthcare, home ownership, family protection and asset enhancement. The CPF is made up of three accounts, Ordinary account (CPF-OA), Special account (CPF-SA) and Medisave account.

Contract For Difference (CFD)

A CFD is a marginable financial derivative that can be traded. When you trade a CFD, this contract will replicate the profit and loss of between the time at which the contract is opened and the time it is closed. You are speculating on a market’s price without taking ownership of the underlying asset, whereas when you trade shares you need to take ownership of the underlying stocks. Asset classes with CFDs include shares, indices, commodities and even cryptocurrencies.

Co-Insurance

Co-insurance is the percentage of the total cost your insurance company will reimburse you for on each claim for your insurance. Co-insurance dictates the breakdown of costs you and your insurer pay for each approved claim. Co-insurance isn’t a set dollar amount, it’s a percentage of the bill. It is not to be mistaken for co-pay, which is a fixed amount that you would pay for each bill.

Cost-Push Inflation

Cost-push inflation occurs when overall prices increase due to an increase in the cost of wages and raw materials. Higher costs of production can decrease the amount of total production in the economy. Since the demand for goods hasn’t changed, the price increases from production are passed onto consumers.

Deductible

A deductible forms one part of your responsibility in the cost of your insurance claim. This amount is decided when purchasing your policy. The deductible amount could be for each claim or each year. This is a term usually found in medical insurance policies.

Emergency Fund

Emergency fund is your financial safety net, money kept liquid for unforeseen expenses and situations. Money kept liquid means it should be easily accessible such as via the ATM, fixed deposits or in investments with little to no penalties for early withdrawal. The fund should have enough money to cover your family’s expenses for a minimum of 6 months or more.

Exchange-Traded Fund (ETF)

An exchange-traded fund (ETF) is a basket of assets such as stocks, commodities, or bonds that trade on an exchange such as Singapore Exchange, Hong Kong Exchange, just like a stock. It often tracks an underlying Index or industry etc. ETFs can be a cost-effective way to invest your money passively. They share characteristics similar to mutual funds and stocks.

Expense Ratio

An expense ratio is represented by a percentage of the fund’s average net assets. It indicates the fee that an investment company charges investors to manage an investment portfolio, a mutual fund, or an exchange-traded fund (ETF). The ratio represents all the fees of the fund, including management fees and and operating fees such as administration, marketing, and distribution

Fixed Income Fund

A fixed income fund is a fund that invests primarily in bonds or other debt securities. Some examples are government and corporate bonds. Such funds generally pay a return on a fixed schedule to investors, typically in the form of fixed interest or dividends. The amount of the payments can vary.

Housing Protection scheme (HPS)

Housing Protection Scheme (HPS) Insurance policies protect Central Provident Fund (CPF) members and their families from losing their HDB flat in the event of death, terminal illness or total permanent disability.

Inflation

Inflation refers to the increase in prices for things and fall in the purchasing value of money in general. In other words, whether you’re buying your favourite Calbee Hot and Spicy chips or the latest Macbook, the prices have gone up. The $1.50 that you hold in your hand has lost its value in the sense that it can no longer buy the same bag of potato chips that it once could.

Inpatient Bills

Refers to medical bills incurred during a hospital stay or day surgery. These could include room & board charges, surgical fees, doctor’s charges, diagnostic scans, and so on.

Insurance

Insurance is a contract that you go into to exchange the risks in your life, family or belongings with a cost that you pay. By doing so, you outsource the risk to the other party in the the contract.

Lapse

The term lapse is often used in insurance policies. This refers to the auto-cancellation of an insurance policy as a result of not paying the premium. When premium payment is not received within the grace period, the insurance policy will lapse. That means you will no longer enjoy the benefits or coverage of the insurance. For insurance policies with accumulated cash values, the cash values can be used to pay the premiums. These policies will also lapse when the cash value diminishes.

Liability

A liability is something a person or company owes. Liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses.

Life assured
Life assured or insured is the person(s) who is covered in the insurance contract. In some cases, the policy holder and the life assured can be two separate persons.
Example: Mother as the policy holder and the life assured her child.
Life Insurance

Life Insurance is a contract that you go into to exchange the risks in your life or your family’s with a cost that you pay. By doing so, you outsourced the risk to the other party in the the contract. Some types of Life Insurances are whole life participating insurance, term life insurance, and investment-linked insurance.

Medical Insurance

A type of insurance purchased to cover the cost of medical treatments.

Monetary Inflation

Monetary inflation is a result of central banks using expansionary monetary policy. They do that by printing more cash to flood the economy with more money. This aims to increase spending by individuals and businesses, which in turn helps to boost the economy. The increase in spending increases aggregate demand. This translates to increase in the demand for labour and a rise in salaries. The more inelastic the aggregate supply in the economy, the greater the impact on inflation.

Money Market Fund

A money market fund is an open-ended mutual fund that invests in short-term, less than one year and low risk debt securities such as treasury bills. The investment objective is to preserve capital while providing higher yield, hence its considered a low risk place to park your cash.

Mutual Fund

A mutual fund is an investment scheme that pools money from different investors packaged under a mutual fund company to meet a specific financial objective. The managers then use that money collectively to purchase securities, such as stocks or bonds. Unit trust funds are in the same investment family as mutual funds—however, a mutual fund is an investment company that issues redeemable shares, while a unit trust fund only issue units (as it is not a company). In Asia, a unit trust is essentially the same as a mutual fund.

Net Asset Value (NAV)

The net asset value (NAV) is calculated as:

Total Value of Entity’s Assets – Total Value of Entity’s Liabilities = Net Asset Value.

Most commonly used in the context of a mutual fund or an exchange-traded fund (ETF), the NAV represents the per share/unit price of the fund on a specific date or time.

Net Worth

Net Worth is calculated as:

Total Assets – Total Liabilities = Net Worth

Your net worth is the figure you get when you sum up everything you own, such as the value of your home to the cash in your bank account and then subtract the value of all of your debts, such as mortgage, loans or even credit card balances.

Outpatient Bills

Refers to medical bills incurred outside a hospital stay. These include visits to general practitioners, specialist doctors, diagnostic tests and scans.

Passive Investing

Passive investing refers to the type of investment strategy where an investor believes that a diversified basket of common stocks, held at the lowest possible cost, with minimal trading, will tend to produce a market average return in the mid to long term.

Personal Mobility Insurance

Covers medical expenses and personal liabilities due to accidents while riding a bicycle or a personal mobility device.

Policy Holder

A policy holder or policy owner refers to the person who owns the insurance policy. This person may or may not be the person who is covered by the policy. Any claims or payment paid out from the policy will be made to the policy holder.

Recession

A recession is part of a business cycle where there is a general decline in economic activity. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. The National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months. This is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Real Estate Investment Trust (REIT)

A real estate investment trust (REIT) invests in most real estate property types, including apartment buildings, cell towers, data centers, hotels. Investing in a REIT allows individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.

Robo-Advisors

Robo-advisors are computer systems which provide automated financial planning services with little to no human support. The robo-advisor collects information from clients about their financial situation and future goals through an online questionnaire. The system then crunches the data client provided, to come up with an asset allocation approach for users to invest. They often provide easy account setup, robust goal planning, account services, portfolio management, and security features, often at much lower fees compared to traditional human advisors.

Robo Funds

Automated investment options that allow you to invest your money via their automated strategies with little to no human support. The team that manages these funds are called robo-advisors.

Savings Insurance

This is also known as endowment policy which is used to grow your wealth. There are participating and non-participating endowment policies. Both types will pay a combination of guaranteed and non-guaranteed returns.

Term Insurance

Term insurance provides a payout to your family upon your demise. It may also cover total permanent disability and critical illness. There is a fixed duration for the coverage and the policy will expire at the end of the agreed duration or upon claims.

Time Value Of Money

The concept of the time value of money explains that the same dollar amount of money will be different in the future. The same $1 has a higher “value” sooner than later as you can earn interest and profit from the money you receive earlier. This gives the $1 today a higher “value” than the $1 ten years later.

Total Debt Servicing Ratio

Total debt servicing ratio can be derived by taking the total monthly debt repayment sum divided by total income. A health debt ratio should be 60% or less.

Total Permanent Disability (TPD)

A type of insurance coverage that typically comes together with a whole life insurance or term life insurance. A payout for TPD is triggered when an individual is found to be permanently disabled. The conditions differ amongst insurers. When this condition is met, a lump sum payout (usually equivalent to the death benefit payout) will be given.

Travel Insurance

Travel Insurance is a contract between you and the insurer, designed to cover the costs and losses associated with unexpected events incurred while travelling. Such events include travel delays and emergency medical expenses while abroad.

Underwriting

Underwriting is how insurance companies assess the risk that they will assume when they sell policyholders a policy. With the information provided (such as age of the person, current and prior health conditions, and related statistics) a decision will be made on whether they wish to cover the risk, and at what price. The price set is the insurance premium.

Unit Trust

Unit trust is a collective investment fund that is priced, bought, and sold in units that represent a mixture of the securities underlying the fund. The underlying value of the assets in a unit trust portfolio is directly stated by the number of units issued multiplied by the price per unit. The term “unit trust” is also used in the United Kingdom as “mutual fund,” which has different properties than mutual funds in the United States.

Waiting Period

A waiting period is a term found in all life insurance policies. It refers to the amount of time your insurer requires you to wait until you are eligible for claims on conditions covered in your policy.

Whole Life Insurance

Whole life insurance provides a payout to your family upon your demise. It may also cover total permanent disability and critical illness. These policies provide coverage over your entire lifetime and would also provide annual cash bonuses paid into the policy.