Investment funds dictionary

Minimum contribution or investment

This is the minimum initial amount required to invest in an investment fund. It is important information to bear in mind because if you transfer capital from one investment fund to another and the amount transferred is less than the minimum contribution required by the destination fund, the transfer may be declined.

Management fee

Fee charged by an investment fund manager for the services provided. It is deducted on a daily basis from the net asset value of the fund and is always a percentage of the assets under management. Some funds also apply a success fee to the profits obtained. The amount is stated in the fund prospectus.

Benchmark

This is a standard or index, such as the Euribor, the Ibex 35 or Eurostoxx 50, used to compare the performance and management of an investment fund.

Beta (â)

This measures the sensitivity of an individual fund to market fluctuations reflected in its benchmark. A beta value higher than 1.0 implies greater variations than the benchmark, both upwards and downwards. A beta value of 1.0 is indicative of a strong correlation with the market. Lastly, a beta value of less than 1.0 implies less volatility than the market.

Deposit fee

Fee received by the depositary of an investment fund for its depositary and custodian services. It is deducted daily from the net asset value of the fund and is therefore already included in the price. The amount is stated in the fund prospectus.

Duration

The duration of a bond is a measure of the average maturity weighted by all the cash flows paid by the bond. In an investment fund, the duration will be the weighted average of the durations of all the bonds that make up the fund. Duration is also used to measure the sensitivity of the bonds in a fund to changes in interest rates. The longer the duration, the greater the price sensitivity to interest rate fluctuations in the market.

Reimbursement fee

A fee that the management entity may charge the participant when it sells its units in an investment fund. The Fund prospectus or the quarterly report will state the amount.

Purchase fee

A fee that the management entity may charge the unit-holder when it purchases units in an investment fund. The Fund prospectus or the quarterly report will state the amount.

Quartile

This is used to gain a picture of the position of funds in terms of the profitability obtained compared with similar funds. Quartiles represent sets of 25% of the funds in the total list of funds of a specific category, grouped according to descending profitability. This means that the first quartile comprises 25% of the best funds with the highest profitability, ordered from highest to lowest, and so on and so forth with the second, third and fourth quartiles. Occasionally, larger partitions are used, such as deciles (10%) and centiles (100%).

Glossary of financial terms for investment funds.