Retirement Planning Glossary – View glossary of Retirement, financial planning, investment terms

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Annuity: When you retire, you can take up to 25 per cent of your savings as a tax-free lump sum. You should use the rest to generate an income to live on in your retirement. You can do this by buying a product called an annuity. The annuity will provide you with a regular income, usually until the end of a specified period or until you die.

APR; You'll see the APR – Annual Percentage Rate – quoted on loans and credit deals. The APR is an interest rate but not one that affects what you pay each month. Instead, you should look at APRs when you're comparing offers from various credit companies.
Assets: Your assets are the things you own that have value, such as your home or shares.
AVC: AVC stands for additional voluntary contributions. They're top-ups you can buy for your occupational pension.
Bonds: A way of saving that works a bit like an IOU – you lend the government or a company some money and they promise to pay your money back in the future AND to pay you a certain rate of return each year until then.
Broker: A broker will buy and sell shares for you.
Buildings insurance: Buildings insurance is insurance for your home and the land it stands on.
Buy-to-let: Buy-to-let is when you invest in property, not to live in, but to rent out to other people.
Capital: Your capital is how much wealth you have in assets such as savings and property. You can use your capital to generate income.
Capital gains tax: A type of tax that you have to pay on the profits you may make from your shares or selling your house.
Collective funds: Collective funds, such as mutual funds, allow you to invest in shares without having to choose to invest in a particular company. They are run by professional fund managers who decide what to invest in and when to buy and sell.
Company pension: A company pension is a pension that's provided by your employer. There are different types of company pension, including defined contribution pensions, final salary pensions.
Compound interest: When you save regularly, each month you not only get interest on what you've saved yourself, you get it on the interest that's been added to the pot in previous months. This is called compound interest and the effect gets better the longer you save.

Contributions; This refers to the amount you pay in to a pension every month. Your employer may make contributions to your pension too.
Corporate bonds: A corporate bond is a bond that's issued by a company. When you invest in a bond, the company promises to repay your money in the future and to pay you a certain rate of return each year until then.
Credit: Credit is money that an organisation, such as a bank, has allowed you to borrow.
Critical illness cover: Insurance that gives you a tax-free lump sum should you develop a serious illness.
Defined benefit pension: A type of company pension. Your pension will be calculated according to your final salary. With defined benefit pensions, the risk rests with the employer, not with you – one of the reasons why they're becoming increasingly hard to find. Also known as a final salary pension.
Defined contribution pension: A type of company pension. Your pension will depend on how much you (or you and your employer) have contributed and how successfully you've invested it. Crucially, you're the one taking the risk, not your employer.
Deposit: A deposit for a property could be one of your short-term savings goals. It's how much cash you've managed to get together towards the purchase price – you'll have to borrow the rest in the form of a mortgage.
Direct debit: A regular monthly payment that you can set up from your account.
Dividends: Dividends are regular payments which companies make to their shareholders.
Employee Pension Scheme

A pension provided by the Employees’ Provident Fund Organisation for its members.
Equities: Another name for shares. You can invest in them either through collective funds like mutual funds, or directly in individual companies.
Exclusions: In insurance, exclusions are the things that the policy states it does not cover. Always read the small print.
Final salary pension: A type of company pension. Your pension will be calculated according to your final salary. With final salary pensions, the risk rests with the employer, not with you – one of the reasons why they're becoming increasingly hard to find. Also known as a defined benefit pension.
Fund: A fund is a portfolio of shares in which you can invest. Managed funds, such as mutual funds are actively managed by a fund manager who chooses what's in them and when to buy and sell. A tracker fund follows an index such as the BSE 30 or NIFTY 50.
Fund manager: A fund manager manages a mutual fund or any collective funds.
Gilts: Gilts are bonds issued by the government.
Hire purchase: When you buy something via hire purchase, you initially hire it and make regular hire payments. After a set number of payments, it becomes yours.
Income: This is the money you have coming in, such as your salary or the interest that you're getting from your investments.
Income gap: This is the difference between the annual income you'd like to have when you retire and what you're actually on course for from the Employee Pension Scheme and current savings.
Index: An index is made up of a group of companies; its level is worked out by averaging the share price values of those companies. Indices can also be weighted, so larger companies have a bigger slice of the cake. The index goes up or down to reflect the market value of shares in the companies in the index.
Inflation: The rate of inflation refers to the rate at which prices rise. If the annual inflation rate is 5%, then a Rs.100 ring will cost Rs.105 next year. Inflation can eat into the purchasing power of your savings.
Interest: Credit cards, loans and bank accounts will all quote you an interest rate. This rate is expressed as a percentage and refers to the money that will be added to your savings – or to your debts – each month or year. The extra money you receive or have to repay is called interest.
Interest rate: Credit cards, loans and bank accounts will all quote you an interest rate. This rate is expressed as a percentage and refers to the money that will be added to your savings – or to your debts – each month or year. A high interest rate is good for savings but bad for debts.
Life insurance: Life insurance pays out a lump sum to your dependants when you die.
Loan: Money lent to you by, say, a bank. You'll have to repay it with interest.
Managed fund: The name given to funds managed by a professional fund manager. The fund manager makes all the investment decisions for you and deals with the administration too. Mutual funds are examples of managed funds.
Market value: This is how much an investment is worth in today's money.
Money purchase scheme: See defined contribution pension.
Mortgage: A type of loan specifically for buying property.
Occupational pension: This is another term for a company pension. There are two kinds: the defined benefit pension (usually a final salary pension) and the defined contribution pension.
Penalty: Loans, savings accounts and mortgages all have conditions attached to them. When you sign up, you agree to the conditions. If you do not comply with the conditions – if you pay off a loan early or want to withdraw your savings before the agreed term – you may be charged a penalty. The nature of the penalty will be set out in the conditions.
Pension: A pension is one of the key ways in which you can save for your retirement. It will give you a regular income when you retire. There are many sorts of pension.
Pension transfer: If you have a pension and get a new job, you may want to transfer your existing pension benefits into your new company's pension scheme. You should speak to a financial adviser as to whether this is the best thing for you to do.
Personal pension: A pension that you take responsibility for yourself.
Policy: The name given to the particular insurance product that you buy.
Premiums: The name given to the payments you make when you buy insurance.
Private pension: A non-state pension.
Property: Property means buildings. You could invest in property by buying your own home, or by going in for buy-to-let – where you buy property not to live in, but to rent out to others.
Rate of return: Expressed as a percentage, the rate of return states the rate at which your investments grow.
Recurring Deposit Account: A type of bank account, which encourages you to save in a regular manner. It offers a higher interest rate than your everyday savings bank account.
Return: This refers to or measures how well your investments perform. For instance, if your shares have made you a lot of money, it's an excellent return on your investment.
Risk: Risk is the possibility that something negative will happen. In financial planning, the risk is you may not get the return you're looking for, or may even lose some of your investment. As a rule of thumb, higher-risk investments, such as shares, have a higher return than low-risk ones. High-risk investments are better suited to long-term savings as it gives you time to ride out the risk.
Rule of 20: The rule of 20 is used to calculate your scary number. It takes 20 as a rule of thumb for how many years you'll have in retirement. Therefore, your scary number is 20 x how much income you'd like each year when you retire.
Rule of 72: The name given to a formula that works out how many years it will take for your savings to double – simply divide 72 by the interest rate you’re getting.
Savings account: A type of bank account which encourages you to save by having a higher interest rate than your everyday current account.
Shareholders: Shareholders hold shares in a company, and so own part of that company.
Shares: Another name for equities. You can invest in them either through collective funds like mutual funds, or else directly in individual companies.
Small print: This refers to the terms and conditions that relate to a particular product.
Tax: A charge set and collected by the government. Many things may be taxable, including salaries, savings (in a standard savings account). Tax is expressed as a percentage.
Tax allowances: The government sets the level at which you have to start paying tax – for instance, on your salary. If you don't get to that level, you don't pay the tax. Up to this level is known as a tax allowance.
Tax-free lump sum: A single amount of money that you don't have to pay tax on.
Tied adviser: A type of financial adviser who can only recommend products from one financial services company.
Tracker fund: Tracker funds are a way of investing in shares. The fund follows – or tracks – an index.