QFA Investment flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

DIRT

Deposit Interest Retention Tax: an Irish tax of 33% deducted at source by banks and other deposit-takers on interest paid to resident depositors.

Deemed disposal

The 8-year rule for Irish life assurance funds and unit trusts: 41% exit tax is charged on unrealised gains even when no withdrawal is made.

Exit tax

A 41% tax on gains in Irish life assurance investment policies and unit trusts, triggered by encashment, transfer or a deemed disposal date.

Approved Retirement Fund

A vehicle into which a maturing pension fund can be transferred, remaining under the owner's control, with annual imputed distributions applying from age 61.

Approved Minimum Retirement Fund

A ring-fenced ARF holding at least 20 times the State Pension, required where the investor lacks guaranteed pension income, and retained until age 75.

PRSA

Personal Retirement Savings Account: a flexible personal pension contract with marginal-rate tax relief, accessible from age 60, offering a 25% tax-free lump sum.

State Savings

Irish government savings products such as Savings Certificates and Savings Bonds, whose returns are exempt from DIRT and PRSI for EU residents.

Investment trust

A closed-ended listed company holding a portfolio of investments; its shares are taxed under CGT at 33% rather than the exit-tax regime.

Duration

A measure of a bond's price sensitivity to yield changes: duration of 7 implies roughly a 7% price fall for a 1 percentage point yield rise.

Credit spread

The yield difference between a corporate bond and a government bond of the same maturity; wider spreads indicate greater perceived default risk.

Inverted yield curve

A yield curve where short-term interest rates exceed long-term rates; historically it has been associated with an approaching economic recession.

Fisher effect

The link between nominal and real returns: (1 + nominal) = (1 + real) × (1 + inflation), so real return approximates nominal return minus inflation.

Money market instrument

A short-term debt security with an original maturity of one year or less, such as a Treasury bill or commercial paper, usually issued at a discount.

Beta

The covariance of an asset's returns with the market divided by the market's variance; it measures systematic risk, with the market set at 1.0.

REIT

A listed company that owns income-producing property, must distribute most rental profits, and pays no corporation tax on those distributions.

Basis point

One hundredth of a percentage point (0.01%), used to quote yields, spreads and fees; 50 basis points equals 0.50%.

Sharpe ratio

Excess return over the risk-free rate divided by standard deviation; a higher figure means more return per unit of total risk taken.

CAPM

The Capital Asset Pricing Model: expected return equals the risk-free rate plus beta multiplied by the market risk premium, pricing only systematic risk.

Efficient frontier

The set of portfolios offering the highest expected return for each level of risk; portfolios lying below it are inefficient and dominated.

Correlation coefficient

A value between −1 and +1 showing how closely two assets' returns move together; lower values deliver greater diversification benefit.

Portfolio expected return

The weighted average of the expected returns of the individual assets held, using each asset's portfolio weight as the multiplier.

Unsystematic risk

Company- or sector-specific risk that can largely be eliminated by holding a diversified portfolio, and which therefore earns no extra return.

Rebalancing

Periodically returning portfolio weights to their target levels, which systematically trims assets that have risen and adds to those that have fallen.

Risk capacity

An investor's financial ability to withstand losses, determined by time horizon, income stability, liquidity needs and overall wealth rather than attitude alone.

Suitability assessment

Under MiFID II, gathering details of a client's knowledge, experience, financial situation and objectives before making any personal recommendation.

PRIIPs KID

A pre-contract document of at most three pages showing a 1–7 risk indicator, costs, performance scenarios and the product's stated objectives.

Investor Compensation Scheme

An Irish scheme paying 90% of a client's loss, subject to a €20,000 maximum, when an investment firm fails and cannot return client assets.

Deposit Guarantee Scheme

Protection of deposits up to €100,000 per depositor per credit institution if the bank fails; coverage is per institution, not per account.

CGT annual exemption

An Irish individual's first €1,270 of chargeable gains in each tax year is exempt; gains above this are taxed at 33%.

Stamp duty on shares

A 1% tax on transfers of Irish-quoted shares, normally paid by the buyer; transfers of Irish commercial property attract 7.5%.

Politically exposed person

A person entrusted with prominent public functions, together with family members and close associates; anti-money-laundering rules require enhanced due diligence.

Best execution

The duty to take all sufficient steps to obtain the best possible result for clients, considering price, cost, speed, execution likelihood and settlement.