Glossary I

FINANCIAL GLOSSARY : I

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Illiquidity

The difficulty of changing your investment back into cash.

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Income share

Class of share within a split capital investment trust that receives a high dividend yield.

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Indemnity insurance

An Insurance which is designed to protect a mortgage lender against the risk of you defaulting or not being able to repay the mortgage. The policy is usually imposed upon by the lender at the start of the loan and the premium payable is determined by the level of perceived risk to the home lender of you defaulting on the loan.

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Independent financial advisor (IFA)

An investment adviser who must consider to survey the whole financial services market for a product that best suits your particular circumstances. They are bound by their profession's rules to give independent advice.

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Index-linked investment

An investment that increases in value each year by the rate of inflation or by a fixed percentage above inflation. Index-linking is mostly associated with income-producing investments, such as, government issued gilts.

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Individual savings account (ISA)

The new tax-exempt savings scheme launched in April 1999 as a replacement for the personal equity plan (PEP) and tax-efficient special savings scheme (TESSA). ISAs can be used to invest in a very wide range of investments and consist of three components: cash (bank and building society accounts and National Savings), insurances (investment-type insurance plans) and stocks and shares ( Unit Trusts, OEICS, investment trusts, direct investment in shares, corporate bonds and gilts). From 2000-01 the annual investment limit is £5,000.

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Inflation

The general increase in prices over time. It has the effect of reducing the buying power of money. The most common measure of inflation is the retail prices index (RPI).

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Inheritance tax (IHT)

This is a tax that is levied on the value of your estate (all the assets you own) when you die. You only pay inheritance tax (at a rate of 40%) once your estate value exceeds a certain limit - for the tax year 2001-2002 the limit is £242,000

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Initial Public Offering (IPO)

The term used in America for a new share issue by a company coming to the stock market for the first time.

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Insider dealing or insider trading

This refers to the illegal use of privileged information which, if made public, would significantly affect the share price. For example, if someone knows that a company is about to make an announcement which will affect the price of its shares; it would be an insider dealing if he/she uses that information to buys or sells shares in advance of the announcement to make a profit.

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Institutions

These are organisations which are in the business of holding assets, such as, pension funds, unit trusts and insurance companies.

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Intangible asset

An intangible asset is an asset that you cannot touch but appears on the balance sheet, such as, brand name, patent or copyright.

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Interest cover

The number of times the interest payments on debt can be covered by the company's profits.

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Intestacy

Refers to dying without making a will. A situation where a set procedure is used to distribute your assets rather than how you wanted to.

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Investment club

A group of individual investors who club together to buy shares on a collective basis and then share the profits made. This has the advantages of reduced transaction costs, shared knowledge and diversification.

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Investment trust

Investment trusts are companies whose business is to investment in the securities of a wide range of other companies. Like unit trusts, they pool together the money of many investors in order to invest it in a portfolio of companies which will be more varied than what small investors could achieve on their own.

Investment trusts are closed ended, which means that they have a fixed amount of capital which is divided into shares and then purchased by investors. They pay dividends to shareholders from profits which arise from their investment income.