An investment strategy that seeks to generate a positive return as a percentage of money invested rather than relative to an index or benchmark.
The Account Fee will be payable by you for the services we provide in connection with your Account, for example, buying and selling shares, sending you statements, switching funds between accounts and all other relevant services, such as custody and administration of those funds when they are held in your account. The Account fee is only applied to your holdings in clean share classes within your Account. It is not applied to shares you hold in legacy share classes.
A style of investment management that makes specific investment decisions which aim to outperform an index or benchmark. This approach can be associated with a higher degree of volatility than passive management but it also has the potential for greater returns. It also requires close monitoring from the fund manager. In the case of the World Selection Portfolios the fund manager takes an active management approach which aims to maximise performance without highly volatile returns.
There are other expenses borne by the portfolios to cover the costs such as depositary, registrars and auditors fees and dealing costs. In addition you should be aware that each of the HSBC World Selection Portfolios invests primarily in other collective investment schemes. The managers of these schemes also make Annual Management Charges. Where relevant, we have negotiated reduced Annual Management Charges for all the funds we select for the HSBC World Selection Portfolios. These underlying Annual Management Charges are included in the other expenses for the HSBC World Selection Portfolios.
Annual Management Charge (AMC)
The AMC is a percentage of the value of each fund and is payable directly to the applicable fund provider. It is reflected in the price of the fund shares or the income distributed by the fund rather than being taken from each individual's investment. The AMC differs from fund to fund, but is not the total cost that you pay on a yearly basis to invest in a fund. Additional charges may apply, such as the Account fee, for the services provided in connection with your Account.
An annuity is a secure, regular income purchased on retirement from an insurance company using a pension fund. The insurance company is then responsible for paying a secure income for at least the rest of a policyholder's life. Income from an annuity is taxed at the policyholder's marginal rate.
Some pension funds invest in a range of different asset classes, such as company shares, bonds and property. The allocation of funds to different assets is decided by the fund manager within the broad objectives of the fund. The fund descriptions in this guide contain details of the assets which may be held by each pension fund available in your pension plan.
A standard against which the performance of a fund is measured. Funds usually choose an index to be the performance benchmark and the index will match the region or sector the fund invests in. For example, a fund investing in companies listed on the FTSE 100 will often use the FTSE 100 Index as a benchmark.
With cash ISAs, you make cash deposits similar to any other savings account except that the interest earned is tax free and does not count towards your Personal Savings Allowance (PSA), if applicable.
Certificate of Deposit
A certificate of deposit entitling the fund to receive interest. It has a maturity date, a specified fixed interest rate and can be issued in any currency. They are generally issued by commercial banks.
Clean share classes
These are share classes which only include the fund provider's charge for managing the fund within their Ongoing Charge. You will pay us separately for our services through an Account Fee and you will also pay separately for any advice you receive.
Each of the HSBC World Selection Portfolios is a type of pooled investment. This means that the total of all the pension contributions and tax relief from many different investors is pooled together to form a fund which is then managed on the same basis for all individual investors holding shares in the fund.
Commodities are raw materials such as food, grains, and metals, which a fund manager is able to buy or sell, usually through futures contracts which are agreements to buy or sell at an agreed upon price on a specific date. The price of a commodity is subject to supply and demand.
An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities.
A bond issued by a company to raise money. In return for lending the company money the investor will receive interest payments (coupon) plus the return of the original investment when the bond matures.
Unlike stocks and bonds, a derivative is usually a contract rather than an asset. It is a promise to convey ownership of the asset, rather than the asset itself. Futures and options are two commonly traded types of derivatives. An options contract gives the owner the right to buy or sell an asset at a set price on or before a given date. On the other hand, the owner of a futures contract is obligated to buy or sell the asset.
A method by which a fund's investments are spread, for example, across different types of investments and countries. By doing so the fund's volatility can be minimised by the impact of a loss to any one investment being reduced by the rise of another.
A financial distribution made by a company to its shareholders, often in the form of cash. Whether a company pays a dividend and the size of the payment is usually determined by the size of the company's profits.
A share is a stake in the company that has issued it. Equities is another name for shares. The value of the shares will depend on a number of factors including how well the company is performing financially. A fund that invests in shares will hold a stake in a range of companies and the value of this stake is often dependent upon the expectation of the future profits those companies will make as well as their historical profitability.
The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.
Floating Rate Notes (FRN)
A debt instrument with a variable interest rate. Mainly issued by financial institutions and government, that typically have a two to five year term to maturity.
Usually used to refer to a bond where the interest is calculated as a fixed percentage of the original amount of money borrowed.
A fund pools together the money from many individuals enabling a fund manager to invest in a broad range of assets. The fund manager will invest in different asset types such as money market instruments, bonds, shares and property - exactly what the fund manager buys depends on the investment objective of the fund.
Fund of Funds
A Fund of Funds is a fund which invests in other funds rather than investing directly in company shares (equities), bonds or other securities. The HSBC World Selection Portfolios are managed on a fund of funds basis.
Government Bond or Gilt
A loan to a national government in return for which the pension fund receives regular payments, (known as the coupon) and a promise that the original investment (principal) is paid back at a specified date. Gilts are loans to the UK government.
Individual Savings Accounts (ISAs)
An ISA is a tax efficient way of saving or investing as all income and capital gains arising within an ISA are exempt from any personal liability to UK Income Tax and Capital Gains Tax.
There are four different types of ISA:
- cash ISAs, which are tax free savings accounts;
- stocks and shares ISAs, which are tax efficient and straightforward ways to invest in a range of investments, because you have no personal liability for income tax or capital gains tax;
- innovative finance ISAs. HSBC doesn't offer an innovative finance ISA; and
- lifetime ISAs. HSBC doesn't offer a lifetime ISA.
A payment by you into an ISA in any tax year is called a subscription. You can only subscribe to one of each type of ISA per tax year, subject to the subscription limits and eligibility requirements for each type of ISA, but you cannot exceed the overall maximum ISA allowance of £20,000 for the current tax year.
The rate of increase in the price of goods and services as measured by the Consumer Price Index (CPI) or Retail Price Index (RPI). RPI and CPI both measure movement in the average price of a 'shopping basket' of goods and services as a way of gauging price inflation. RPI includes certain items that are not part of the Consumer Price Index (CPI), including council tax and mortgage interest payments.
Innovative Finance ISA
This is available to investors aged 18 or over. Any loan repayments, interest and gains from peer to peer loans are eligible to be held within this new type of ISA, without being subject to tax. HSBC does not offer an Innovative Finance ISA.
Legacy share classes
These are share classes that include both the fund provider's charge for managing the fund and the amount the fund provider pays to us for administration and introducing the business to them within their Ongoing Charge.
Money Market Instruments
A term that includes various instruments, such as certificates of deposit, commercial paper and floating rate notes (FRN). These instruments, or types of investment, typically have very short term maturity dates and are used by institutions and the government to manage short term cash needs.
The Ongoing Charge is a percentage of the value of each fund and is reflected in the price of the shares. The Ongoing Charge is made up of the Annual Management Charge (AMC), which is payable to the investment company for managing the fund, and Other Expenses which cover the costs that must be met to ensure the fund is appropriately governed and administered (including services such as depositary and audit fees).
Open Market Option (OMO)
The term used to describe the ability you have, when approaching retirement, to shop around for annuities from a number of different annuity providers in the market, rather than simply take the default rate offered by your pension provider. The OMO allows you to obtain a better rate, and therefore a higher retirement income, than may be the case if you purchased an annuity from your pension provider.
A passive approach to investment management where a Fund tracks a specific index or set of indices, such as the FTSE All-Share Index. This approach can be less volatile than actively managed funds that invest in shares in the same index. However, passive funds are not free of risks and still exhibit the return and risk characteristics of investing in a large number of company shares.
Whereas a fund typically invests in shares, bonds and money market instruments, the HSBC World Selection Portfolios invest in a range of funds selected by the fund manager.
Real value removes the effects of general price level changes over time. The effect of inflation is the biggest factor in expressing a real value. For example, inflationary effects will mean that in real terms £1 today will be worth less, and have a lower purchasing power in the future.
A term used to describe stocks, shares and bonds.
Stocks and shares ISA
- With stocks and shares ISAs, you invest your money into either a collective investment scheme (often referred to as 'Investment Funds' which invest in a range of different assets such as shares, government bonds, gilts and even other investment funds), or directly into individual stocks and shares (for example equities or bonds).
- Stocks and shares ISAs are not investments in their own right; they are tax wrappers that surround an investment to provide the tax efficient returns. The value of your stocks and shares ISA will depend on how well the underlying investments (for example investment funds or individual stocks and shares) perform, and whether you choose to have any income paid out at regular intervals.
A place where stocks and shares are bought and sold, for instance the London Stock Exchange.
An Index Tracker aims to replicate the returns of a given index as closely as possible, by investing in financial instruments that will closely replicate the characteristics of the given index. An Index Tracker fund may not exactly replicate an index for a number of reasons, including:
- Charges will have an impact on the performance of tracker funds
- It may not be economic for a fund manager to purchase shares in a particular territory and the manager may choose to gain exposure to a region of the world through a specialised financial instrument
- The effect of dividend payments are normally reflected immediately in the index and often some weeks later in a tracker fund.
Volatility is a measure of how much a fund's price goes up or down as a percentage of its total value. For example the price of a money market fund will typically change very little from day to day and has low volatility. A fund investing in shares is exposed to stock market variations and has a higher volatility. The higher the volatility of a fund, then generally the greater the investment risk.
Want to know how you can invest with HSBC?
Most investments should be considered as a medium to long-term commitment, meaning you should be prepared to hold them for at least five years.
All investments carry some risk. The value of investments (and any income received from them) can fall as well as rise and you may not get back what you invested. For some investments this can also happen as a result of exchange rate fluctuations as shares and funds may have an exposure to overseas markets.
The value of any tax benefits this product can offer will depend on your individual circumstances – tax rules may change in future.
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