Glossary

Diversification

Refers to when investments are spread across a number of individual assets, classes of assets, countries or investment managers. The objective of diversification is to reduce total overall risk.

Eligible Termination Payment (ETP)

Generally a lump sum payment from a superannuation fund or RSA or an employer to an employee when he/she ceases employment. Provided the recipient is under 65, the ETP can be rolled over into a deferred annuity, alternative superannuation fund or RSA. For tax purposes it is split into a number of components: excessive component (tested against the individual's RBL); pre-July 1983 component (5 per cent of this component is taxed at the individual's marginal tax rate); concessional component (not able to be paid from superannuation funds from 1 July 1994, although they may still be paid directly by employers); post-June 1994 invalidity component (from 1 July 1994, consists of invalidity payments and is tax free); non-qualifying component (assessable as ordinary income on the non-rollover component); undeducted contributions (no tax is payable); post-June 1983 component (tax treatment depends on age and amount of payout).

Emerging markets

Financial markets in countries with developing economies, where industrialisation has begun and the economy has links with the global economy. The financial markets in these countries are immature compared to those of the world's major financial centres, but are becoming increasingly sophisticated and integrated into the international markets. These markets provide potentially high returns but are subject to high risk and volatility. Current examples would include Thailand and Mexico.

Employer-Sponsored Fund

A superannuation fund created by an employer or group of employers for the benefit of employees. Employer sponsored superannuation funds include corporate funds, government funds and industry funds.

Exit Fee

A charge levied on a member's benefit when all or part is withdrawn from a superannuation fund or RSA. Exit fees, also called redemption fees or charges, vary substantially between funds.

Fund Investment Manager

An organisation that specialises in the investment of a portfolio of assets on behalf of individuals and organisations, subject to the investor's guidelines. Also, referred to as an investment manager.

Group Life Insurance

Insurance arranged for a group associated in some way (e.g. superannuation fund members), for whom certain assumptions about an average state of health can be made. Premiums are often cheaper for each individual in the group than if the person had arranged their own insurance. Most funds acquire group life insurance for each member up to certain levels (the automatic cover limit) without having to provide evidence of insurability or good health.

Growth assets

A general term for assets such as shares and property that provide investment returns (comprising both capital growth and income) that outperform inflation.

Hedge fund

A type of investment portfolio under which the fund manager is authorised to use a number of higher risk investment techniques, including using derivatives, short selling and borrowing funds, in order to generate a higher return.

Hedging

The practice of undertaking one investment activity in order to protect against loss in another.

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