unit 1 topic 6- Direct investments, cash and fixed interest securities Flashcards
Define Capital
In the case of a savings account, capital is the cash that is deposited. It differs from ‘money’ in the sense that it is being used to generate wealth rather to purchase goods and services.
What are the five main asset classes?
- Cash- Property- Equities- Fixed interest securities- Alternative investments (fine wine, antiques etc)
What are gilts?
- Gilts belong to a category of direct investment called ‘fixed interest securities’.- They are a form of borrowing by the UK government.- Gilts are regarded safe because the government is not expected to default on capital repayments or interest.
Define ‘Redemption Date’ and ‘Coupon’ with respect to gilts.
Redemption Date: The date on which the government must redeem the gilt by paying back its original issue value or par value, normally quoted as a nominal £100. This works in the same way as redeeming an interest-only mortgage.Coupon: The interest rate payable on the par value of a gilt. It is a fixed rate, paid half-yearly, gross but taxable.
Direct Saver Outline the Term, tax, limits and additional info of the product above.
Term: None Tax: TaxableLimits: £1 - £2mMin. age 16. Managed online or over the phone. Interest variable.
Investment account Outline the Term, tax, limits and additional info of the product above.
Term: None Tax: Taxable, paid grossLimits: £20 - £1mMin. age 16. Interest variable. Investment into an NS&I investment account can be made on behalf of someone under 16.
Income bonds Outline the Term, tax, limits and additional info of the product above.
Term: None Tax: Taxable, paid grossLimits: £500 - £1mMin. age 16. Interest variable (paid monthly).
Direct ISA Outline the Term, tax, limits and additional info of the product above.
Term: None Tax: Tax-freeLimits: £1 - £20,000 (2019/20)Min. age 16. UK residents only. Interest variable. Managed online or over the phone.
Premium bonds Outline the Term, tax, limits and additional info of the product above.
Term: None Tax: Tax-freeLimits: £25 - £50,000Min. age 16 (can be bought on behalf of under-16s). No interest paid, monthly prize draw. Max. winnings £1m.
Junior ISA Outline the Term, tax, limits and additional info of the product above.
Term: None Tax: Tax-freeLimits: £1 - £9,000 (2022/23)Min. age 16. No access before age 18.
Guaranteed Income Bonds Outline the Term, tax, limits and additional info of the product above.
Term: 1 year and 3 years Tax: TaxableLimits: £500 - £10,000Fixed monthly interest available to those aged 16 and over.
Guaranteed Growth Bonds Outline the Term, tax, limits and additional info of the product above.
Term: 1 year and 3 years Tax: TaxableLimits: £500 - £10,000Fixed rate of annual growth. Min. age 16.
What is a debenture?
A bond that is backed by security. The security is provided by a charge over company assets.
What are Local authority bonds?
- Local authorities borrowing money by issuing stocks or bonds.- Fixed-term, fixed-interest securities.- Secured on local authority assets and offer a guaranteed rate of interest, paid half-yearly.- Bonds are not negotiable and have a fixed return at maturity.- Return of capital on maturity promised, but no quite as secure as gilts since there is no government guarantee.
What are Permanent interest-bearing shares?
- PIBS are issued by building societies to raise capital.- Pay a fixed rate of interest on a half-yearly basis.- Interest is paid gross, taxable as savings income according to the investor’s tax status.- PIBS rank below ordinary accounts in priority of payment. Higher risk as depositors paid before shareholders.- If a building society convertx to a bank by ‘demutualising’, the PIBS it has issued are converted to perpetual subordinated bonds (PSBs).- PSBs are similar to PIBS: no redemption or maturity date and provide a fixed income.