Active Management
A style of investment management that relies on the fund manager making investment decisions based on extensive research and analysis. The aim is usually to outperform a particular market or sector index rather than to replicate it.

Aggressive Growth Fund
A mutual fund that aims to maximise long-term capital growth by investing in higher risk securities that offer the potential for greater gains.

Annual Return
The average gain or loss an investment has made each calendar year or over other 12-month periods.

Asset Allocation
How a portfolio is divided between different types of assets and securities. The three main asset classes are stocks, bonds and cash.

Authorised Funds
A mutual fund that is allowed to be sold in Hong Kong after fulfilling the requirements of the Hong Kong Securities and Futures Commission (SFC). Authorisation of a fund does not imply any recommendation from SFC.

Balanced Fund
A mutual fund that aims to provide capital growth and income, along with capital preservation, by investing in stocks, bonds and/or money market instruments.

Benchmark
A quantitative standard against which a fund's performance can be measured, usually in the form of a market index, or an index which shows the performance of a peer group.

Bid Price
The price at which holders can sell their units. This represents a fund's net asset value plus a redemption fee, if any.

Bid-offer Spread
The difference between the price at which a security or mutual fund is sold (bid) and bought (offer).

Bond Fund
A mutual fund investing in bonds, i.e. debt securities issued by corporations and governments. Bond funds usually aim to maintain a more stable unit price, focusing more on interest than capital growth.

Closed-end Fund
An investment fund with limited availability. This type of fund usually has a fixed amount of shares (rather than units) that are traded on a stock exchange.

Contribution
An amount of money paid regularly to a mutual fund savings plan or a retirement scheme such as the Mandatory Provident Fund (MPF).

Custodian
An entity, usually a bank or trust company, that holds and safeguards a mutual fund's securities on behalf of investors.

Daily Valuation
The latest market value of a fund's assets, calculated at the end of each business day.

Dealing
The buying and selling of units in a mutual fund.

Defined Benefit Plan
A retirement plan that guarantees to pay employees a certain amount, usually in accordance with their years of service and the average salary in the period before retirement. Employers, in general, undertake all the investment risks involved in meeting the defined benefit schedule.

Defined Contribution Plan
A retirement plan where contributions, usually made by both the employer and the employees, are invested to provide a lump sum at retirement. The amount of retirement benefit depends on contribution levels and investment returns.

Diversification
Reducing risk by maintaining a wide spread of investments. A diversified portfolio is less likely to be affected by a fall in a single security, sector or country.

Dividend Distributions
Payments made to mutual fund investors, usually twice yearly. These distributions reflect the income a fund has received from share holdings and interest-bearing securities, or they could come from trading profits. Investors may choose to receive these distributions or have them reinvested. (See 'Reinvestment')

Dollar-cost Averaging
How regular investments can purchase more units than a lump sum, reducing the overall cost of an investment. If unit prices fluctuate, the regular investor will pick up more units when prices fall.

Emerging Market Fund
A mutual fund that focuses on the developing markets in Asia, Latin America, or Eastern Europe. This type of fund is generally considered higher risk due to the smaller size, lower liquidity and lack of maturity of these markets.

Employee Contribution
The amount an employee pays to a company retirement scheme or to the Mandatory Provident Fund (MPF). Under MPF rules, employees are required to contribute 5% of their relevant income, up to a maximum of HK$1,000 per month.

Employer Contribution
The amount an employer pays to a retirement scheme or MPF for each scheme member. MPF rules require employers to contribute 5% of an employee's relevant income, up to a maximum of HK$1,000 per month.

Equity Fund
A mutual fund investing predominantly in stocks and shares, usually with the objective of providing long-term capital growth. Some equity funds concentrate on a particular country, while others cover a region, a sector or all the world's major markets.

Explanatory Memorandum
The legal document containing important information about a mutual fund such as the investment objectives, the risks involved, how fees and charges are applied, etc. Individuals should always refer to this document, sometimes called an Offering document or Prospectus, before investing a fund.

Fixed-income Fund
A mutual fund invested primarily in bonds. Although the income received and generated by the Fund may not be fixed, bonds are traditionally referred to as 'fixed-income securities'.

Front-end Fee
A sales charge paid todistributors at the time of purchase of a mutual fund.

Fund Manager
Either the person in charge of a mutual fund's investment decisions or the investment firm running the fund.

Global Fund
A mutual fund invested in financial markets around the world.

Growth and Income Fund
A mutual fund that invests in both stocks and bonds with the aim of generating both long-term capital growth as well as some income.

HKIFA
The Hong Kong Investment Funds Association - the body that represents the fund management industry in Hong Kong to both the public and the government.

Income Fund
A mutual fund that by investing mainly in bonds or in high dividend stocks aims at current income rather than capital growth.

Index Fund
A mutual fund that aims to replicate a stock market index in its portfolio so that its performance mirrors that of the index. Index Funds are also known as 'tracker' or 'passively-managed' funds.

Information Ratio
A measure of a fund's performance relative to its benchmark. The information ratio is calculated by taking the fund's excess return relative to its benchmark divided by the tracking error.

Investment Adviser
A person or organization, acting on behalf of a mutual fund or individual investor, who makes the day-to-day investment decisions for the portfolio. All investment advisers in Hong Kong must be registered with the Securities and Futures Commission (SFC).

Investment Company/Trust
Similar to a mutual fund except that it is established as a company and its shares, which may be limited in number, are traded on a stock exchange.

Management Fee
The amount deducted from a mutual fund to cover the costs of managing the fund (salaries, broker fees etc.) Although expressed as an annual percentage, it is actually charged daily and included in the calculation of a fund's Net Asset Value.

Mandatory Contributions
The Mandatory Provident Fund (MPF) investment levels required by MPF legislation. Both employers and employees must contribute a minimum of 5% relevant income to the scheme, up to a maximum of HK$1,000 per month.

Mandatory Provident Fund Scheme (MPF)
The compulsory retirement scheme for Hong Kong employees.

Mutual Fund
An investment vehicle that enables individual investors to pool their money together and benefit from key advantages not normally available to smaller investors. These include:professional day-to-day investment management, greater diversification, easy access to global financial markets and 'wholesale' discounts and interest rates. Mutual funds are also generally known as unit trusts in Hong Kong.

Net Asset Value (NAV)
The market value of a unit in a mutual fund, estimated as the value of the fund's underlying assets minus its liabilities divided by the number of shares outstanding. Usually, the NAV is calculated at the end of each business day.

Offer price
The price at which mutual fund units are bought. This price usually reflects the preliminary or 'front-end' fee.

Offering Document
See 'Explanatory Memorandum'.

Offshore Fund
A mutual fund 'domiciled' outside Hong Kong. Domicile is the jurisdiction in which the fund's Trustee is legally passed. Traditionally, most mutual funds available in Hong Kong have been domiciled in overseas financial centers such as Luxembourg, Bermuda, or Dublin.

Open-ended Fund
An investment fund with unlimited availability. Most mutual funds are open-ended.

Pension Plan/Pension Scheme
An investment plan for the purpose of providing retirement benefits. In Hong Kong, retirement benefits may be paid as a lump sum, but in some other jurisdictions, they must be paid as a lifelong income, i.e. a pension. A plan is set up by an individual, whereas a scheme is arranged by an employer for a group of employees.

Portfolio
The collection of investments held by an individual, a fund or an institution.

Prospectus
See 'Explanatory Memorandum'.

Redemption
Selling units in a mutual fund to cash in the investment.

Redemption Fee
A fee charged by some mutual funds when holders sell their units.

Redemption Price
See 'Bid Price'.

Regional Fund
A fund that invests in the securities of a particular region such as the Far East, Europe or Greater China.

Reinvestment
The purchase of securities with the proceeds from existing investment (share dividends, bond coupon payments etc.) Usually, investors are offered a choice of either receiving distributions or having them automatically reinvested.

Return
The annual amount made by an investment expressed as a percentage of the total amount invested. Also called the rate of return.

Risk Tolerance
An investor's ability to handle declines in the value of his or her portfolio.

Risk-adjusted Return
A measure of how much an investment returned in relation to the amount of risk taken. This is useful when comparing different types of funds.

Sector/Theme Fund
A mutual fund that concentrates on a particular industry or theme such as technology or biotechnology.

Share
A unit of ownership in a company or an investment fund.

Sharpe Ratio
A risk-adjusted performance measure used to gauge return per unit of risk. A fund with a higher Sharpe ratio generally has better historical risk-adjusted performance.

Time Horizon
The amount of time an investor has to reach an investment goal e.g. 20 years to retirement.

Tracking Error
A statistical measure used to quantify the extent to which a fund's return deviates from that of the benchmark. The larger the tracking error, the more the portfolio diverges from the market index, indicating an active management style.

Trustee
An individual or organization authorised to hold the assets of the trust or plan for the benefit of the beneficiaries or participants.

Unauthorised Fund
A fund that has not been approved by the Securities and Futures Commission (SFC) to be marketed and sold in Hong Kong.

Unit
How a mutual fund is divided to quantify each investor's ownership of the fund.

Unit Holder
An investor in a mutual fund/unit trust.

Unit Trust
See 'Mutual Fund'.

Volatility
The rate at which the value of an investment moves up and down. If the value of a fund moves up and down rapidly it has high volatility. If the price changes gradually it has low volatility.

Voluntary Contributions
Either employers or employees may make additional contributions on top of their mandatory contributions. Voluntary contributions are a popular way for people to save more for their retirement.