Glossary I to L
I
IFA - Independent financial adviser
– this is a qualified person, authorised and regulated by the FSA, who provides advice on various financial and investment matters including structured products. IFAs are independent and have a duty to act on your behalf and cannot act for the product providers.Income – this is the payment you will receive regularly throughout the life of the investment (usually each month or each year). The level of income is set at the beginning, and reflects how risky the plan is – in other words, the higher the income, the higher the risk.
Implied Volatility, or Vol
- The implied volatility of an index or any other asset is the name given to the expected volatility that this share or index is anticipated as having over some future period: as opposed to the real movements which are used to determine Historic Volatility. It is a based on an assumption as to the riskiness. For a fund, the Implied Vol is a measure of the strategy used and a value-based assessment of how it is likely to perform. In conjunction with backtesting, this gives an idea of what a fund (new or existing) might do in the future, for example.
Inefficient portfolio
- A portfolio that delivers an expected return that is too low for the amount of risk it requires, or equivalently, a portfolio that requires too much risk for a given expected return.
Inflation hedge
- An investment designed to protect against inflation risk. Such an investment's value will typically increase with inflation. One example is stock of companies that operate in the natural resources industries. (hedge a investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a short sale.)
Inflation-indexed security
- A security which promises a higher return than the rate of inflation if the security is held to maturity
Inflation risk
- The possibility that the value of assets or income will decrease as inflation shrinks the purchasing power of a currency. Inflation causes money to decrease in value at some rate, and does so whether the money is invested or not.
Initial index level
– this refers to the level of the index which the product is linked to at the start of theproduct’s life. This is the level used when looking at how the plan has performed overall.
Initial measurement period
– this is the period during which market movements are taken into account and measured against the soft protection levels. The measurements can be either intra-day or close of business. If one of the protection levels is broken during the initial measurement, it will activate the secondary measurement period, which will be used to work out the final level.
Intra-day low
– this is the lowest point which an index or share falls to in any given day. The intra-day low is usually lower than the close-of-business level. Some products use this method of valuation whenlooking to see if a plan is falling below a safety level or when measuring the final index level. This method is not as favourable as close-of-business pricing and can be to your disadvantage. However, you should look at it along with the safety levels offered.
ISA (Individual Savings Account)
– this is a tax-efficient way of saving that was introduced by the Government in 1999, to replace PEPs. If you live in the UK for tax purposes and are over 18, you may, in any one tax year, take out either a mini cash ISA, mini stocks and shares ISA or just a maxi stocks and shares ISA. However, some providers who sell structured products only accept ISAs for the full maxi stocks and shares ISA subscription.
Issuer
– the plan manager or organisation who markets an investment and organises all of the people involved.K
Kick Out
- A kick out call matures early if the underlying has risen to a specified level on a fixed date during the term. For example, a product might offer a minimum return of 100% plus 100% of the rise in the FTSE100 index after six years but pay out 130% after three years if the index has risen by 30% or more at this date.L
Life-assurance bonds
– these are the original investment products used for structured products. They are only issued by life-assurance companies and can have tax benefits if you pay the higher rate of tax. Very few UK life companies now issue these products due to changes in how the funds are taxed, although they are still offered by a number of offshore life companies.
LIBOR
- LIBOR stands for the London Interbank Offered Rate. It is the benchmark interest rate at which the wholesale banks lend money to each other in the money markets. It is set each day at 11am London Time and there are different rates for different loans i.e. one month, three month, etc.
LIFFE - London International Financial Futures Exchange
– when this exchange was created it saw the development of financial instruments that allowed investors to take a view on the future levels of shares or an index. It was from here that structured investments were able to develop in the early 1990s.Look-back period – this is the period during which the final level of the index is worked out. This may be a week, month or even longer. Generally speaking the shorter the period the better. Sometimes it is referred to as the secondary measurement period.