Saving and investment glossary
What is an equity savings account or book-entry account? What does diversification mean? Do you know your way around stocks and dividends? This glossary explains the key terms related to investing.
Basic terminology
Diversification means investing your money in several places. This reduces your investment risk. Diversification is a good way of protecting yourself against market downturns. The idea is that different investments reach their highest and lowest values at different moments. This means that positive performance in one investment can outweigh the negative performance of another. It’s possible to diversify your investments across financial instruments, industries, geographical areas and time.
Regular stock investments or monthly investments in a fund or ETF are great ways of diversifying your investments across time.
Compound interest or ‘interest on interest’ means that you earn interest on your original money saved or invested, and on the interest you keep earning. The sooner you start saving or investing, the more you will benefit from the effect of compound interest.
For example, if you save 100 euros per month on an account with a 0% interest rate, you will end up with 24,000 euros in 20 years.
In contrast, if you invest 100 euros per month in a fund with a 7% return, you could end up with 51,000 euros after 20 years, thanks to the compound interest.
Systematic or regular investment is an easy way to make your money grow. You can get started with just 10 euros a month, but a higher sum can lead to higher returns.
With automatic monthly investments in a fund, investing is easy. The fund ensures that your investments are diversified, because even a small investment amount means an investment in several areas. By investing monthly, you can ensure diversification of your investments across time.
You can start monthly investment easily on OP-mobile (or in the op.fi service in Finnish or Swedish). You can edit, pause or stop your automatic monthly investments at any time.
Risk means that the value of investments can rise and fall. An investor can lose part or even all the money they have invested, or never receive the expected return. Investment always involves a risk.
Risk and expected return go hand in hand. The higher the risk, the higher the potential return may be. When considering where to invest, you should always think about the level of risk you can handle (your risk tolerance).
A holistic plan for how you will invest your money. The plan will help you build your wealth in a systematic way and, ideally, is made when you’re about to start investing. It’s a good idea to make your investment plan in writing, because it will be easier to follow it. Things to consider in your plan:
- Your investor profile
- Your investment goals
- Your risk tolerance: the level of risk you can handle
- Your investment horizon: how long do you expect to hold your investments
- Your budget
- Allocation: how to spread your money between various asset classes (such as funds and stocks)
- Costs of saving and investing
- Selecting your investments (which stocks, funds, bonds)
- Resources: how much time you can put into investing
Investing in funds
A simplified, two-page brochure required on all funds in the EU. A KIDI includes all key facts about a particular fund, such as what the fund invests in, its special characteristics, charges for the fund, its past performance and the risk level.
On our website, you can find a KIDI on each fund’s page, under Brochure.
An investment fund that can deviate from the investment restrictions laid out in the Finnish Act on Common Funds. A special common fund can only include a few investments, while a common fund must have at least 16 different investments.
With us, you can invest in these special common funds:
OP-Public Services Real Estate
An annual charge paid to an investment management company for managing a fund. The management fee varies by fund. It depends, for example, on the markets in which the fund invests and the workload required by portfolio management and markets analysis.
The management fee is a percentage per year, calculated each day based on the fund’s net asset value (NAV).
A fund that tracks a certain index. An index fund contains the same shares in the same proportions as the reference index.
Index funds are passive funds. Their management costs are usually lower than those of actively managed funds. That’s why index funds are a very cost effective way of fund investing.
A fund that invests in fixed income products or various bonds. Fixed income funds are a good alternative to direct fixed income investments. You can even invest small amounts, like 10 euros, in fixed income funds. With small investments in a fixed income fund, you can benefit from the performance of several investments. This diversification means that you have better chances of a higher return. Fixed income investments tend to provide better returns when stock prices are falling, and vice versa.
Our range includes funds investing in short or long-term fixed income securities or in emerging fixed income markets.
Selling fund units you hold can also be called ‘redeeming your units’. Generally you can sell fund units on any business day on OP-mobile or via the op.fi service (login in Finnish or Swedish). However, some funds may have rules that allow selling the fund’s units on specific dates only. This is typical for special common funds that invest in forest or residential units. Cashing such investments would then be slower than selling stocks.
Selling fund units is often subject to a charge called a redemption fee.
A fee charged by the fund management company when you sell (‘redeem’) fund units. Also called the exit fee. Not all funds charge redemption fees.
A fund that mainly invests its assets in stocks. An equity fund is a good long-term investment. It can be an alternative to, or complement, direct stock investments. Equity funds invest in several companies, which lowers the risk of investing.
A company managing a mutual fund. The company combines money invested by private persons and institutions and invests it in financial instruments which make up the fund. The fund management company does not own the funds’ assets, but they are owned by the investors (unitholders). In Finland, a fund management company needs a licence to do business. This can be obtained from the Finnish Financial Supervisory Authority, which also supervises fund management companies’ operations.
OP’s funds are managed by OP Fund Management Company Ltd.
A mutual fund, investment fund, or simply ‘fund’, is a portfolio of securities, divided into fund units which are equal in size. Investing in a fund means that you buy (‘subscribe for’) fund units. You can also invest regularly in a fund by starting monthly investment.
OP’s funds are managed by OP Fund Management Company, which combines money invested by many customers to invest in several financial instruments such as stocks, commodities and fixed-income instruments. The fund consists of the financial instruments held by the fund. Our funds are managed by our professional portfolio managers.
An index to which an investment product’s performance is compared. Most of our funds have a benchmark index. They are specified in the Key Investor Information Document (KIID) available on each fund’s page under Brochure. Actively managed funds generally seek to perform better than the benchmark index. Passively managed funds, in turn, seek to perform similarly to it.
An example of a benchmark index: OMX Helsinki Cap.
A fund that invests both in stocks and fixed income instruments, such as bonds. The proportions (weights) of stocks and fixed income instruments can be changed depending on market conditions. With balanced funds, you can easily diversify your investments on the stock and fixed income markets.
Investing in stocks or other instruments
A book-entry account is an account for managing electronic securities. Examples of electronic securities are shares, bonds, exchange traded fund (ETF) shares, options, warrants or subscription rights. Securities in the book-entry account are called book-entries. The book-entry account always has a cash account linked to it, for managing the payment transactions related to the book-entry account.
ETF is short for Exchange Traded Fund. ETFs are similar to regular funds, but are listed on a stock exchange and you can buy and sell their units just like stocks.
Most ETFs are passively managed and aim to follow the performance of an index. That’s why investing in ETFs is very cost effective. With ETFs, you can invest in many countries and industries that are rarely available via other investment products.
ETC is short for Exchange Traded Commodity. ETCs are the easiest way to invest in single commodities or raw materials. Most ETCs are based on the price performance of an index or index basket tracking a certain commodity. With ETCs, you can invest in grain, coffee, oil, energy, industrial metals, gold, foreign currencies and more.
ETPs, or Exchange Traded Products, is a general term for all products which are listed on a stock exchange and track an underlying investment. ETPs are traded continuously on stock exchanges during trading hours. Prices of ETPs change along with the prices of their underlying investments. Examples of underlying investments: a basket of securities containing stocks or bonds, a single commodity or a foreign currency.
Options granted by companies to their management and other employees as part of the company's incentive system. A holder of employee stock options can either buy shares with them or sell the options. Stock options are generally listed when their subscription period begins.
One type of structured product. Depending on the country, it can also be called a linker, real return bond or Treasury Inflation-Protected Security (TIPS). Typically, an index-linked bond has a term to maturity of 5 years and the minimum investment is 1,000 euros. You can usually sell it at market price anytime during the bond’s term. If you invest in a Neutral index-linked bond, instead of making a direct stock investment, you will see the difference if the stock markets fall during the investment term: on the bond’s maturity date you will get back at least the amount you invested. Like all bonds, however, an index-linked bond carries the risk that its issuer becomes insolvent and can’t meet its obligations to you.
The amount of money (principal) you invest in an index-linked bond or an investment bond product. Some bond products guarantee payback of 100% of the initial capital on the bond’s maturity date. Others involve the risk of the bond’s issuer becoming insolvent and loss of the initial capital.
A share means part ownership in a limited liability company, in this case in a company listed in a stock exchange. The three terms ‘stocks’, ‘shares’ and ‘equities’ are all common in English. When you buy shares, you become a shareholder of the company.
The Limited Liability Companies Act specifies the rights of shareholders and matters related to governance and decision-making. Shares owned in a company give their holder an ownership right to a proportion of the company equal to the shares owned. Owning shares gives their holder the right to speak and vote in the general meeting. The general meeting is a limited liability company’s highest decision-making body which decides on the company’s dividends. If the company decides to distribute dividends, you as a shareholder will have the right to be paid dividend. You also have the right to buy additional shares in any future share issue of the company (pre-emptive rights).
History shows that investing in shares is an excellent way of making your money grow. It’s a good option for you if you are seeking a high return and can handle changes in share prices (also called market fluctuations or volatility). Your return will come from the possible rise in your shares’ value plus any dividends you may get. You can invest in shares via a book-entry account or equity savings account.
An account for investing in listed shares of Finnish companies that has tax benefits: you pay no taxes when you sell shares or are paid dividends within the account. This means that your investments benefit from the compound interest effect and you have the best chance of good returns. You will eventually have to pay taxes on the returns from your equity savings account, but only when you withdraw money from it. Because you only pay taxes when withdrawing money, your investments and returns can grow and earn compound interest while in the account.
You can deposit a maximum of 100,000 euros into your equity savings account, at one time or in instalments. You can only transfer money to your equity savings account, not any shares you already own.
Read more about the equity savings account
A proportion of a limited liability company’s profits. By paying out dividends, the company distributes some of its profits to its shareholders. In general, the date of the general meeting is the day that determines whether shareholders have the right to get dividends. If you own or buy the company’s shares on the day of its general meeting, you are entitled to dividends.
Premium has many meanings. When a company makes a bid to buy a listed company, the buyer company is generally ready to pay a higher price than the listed company’s market value. The amount above the market price is called a premium.
If an investment fund’s units ‘trade on a premium’, this means that the value of fund units is now higher than the fund’s net asset value (NAV). Here, the amount above the NAV is called the premium. In this case, a buyer pays more for the units than the fund’s assets are worth. The premium is generally expressed as a percentage.
Structured investment products whose maturity can be specified or open (open ended). Most certificates listed on Nasdaq Helsinki are open ended, which means that their validity is not limited. As investment products, open ended certificates are comparable with ETFs and ETCs.
A capital-guaranteed investment solution that seeks reasonable yield potential. By investing in several savings bonds, you can easily diversify your investments because the themes of our savings bonds vary. The bond’s yield depends on the performance of the underlying investment during the bond’s term to maturity. The underlying investments can include stocks, currencies or commodities.
A derivative and security issued by a bank or a brokerage firm. Warrants are high risk. With warrants, an investor can access the markets with less capital than by investing directly in the underlying asset.
Warrants include a leverage effect: the investor can gain a higher return than by investing the same amount in the underlying asset. High return potential is coupled with high risk: the warrant may lose all of its value. In such a case, the investor will lose the sum they invested.
Saving through insurance
The party to whom an insurance benefit is paid. In an insurance policy’s beneficiary clause, the policyholder defines who the policy’s beneficiaries are. Examples of beneficiaries: next of kin, children or a named person. When the insurance policy ends, benefit is paid as specified in the valid beneficiary clause – even if the policyholder had a valid will or prenuptial agreement. If the beneficiary is a death estate, the benefit becomes part of the estate’s assets. The benefit amount is then divided between legal heirs or beneficiaries under the insured person’s will.
In endowment insurance, the policyholder defines the beneficiaries separately for the death benefit and for the insurance assets (endowment lump sum). The insurance assets beneficiary will receive the lump sum on the agreed date when the policy matures. By contrast, the death benefit will be paid to its beneficiary in the event of the insured person’s death.
If you are the policyholder, please remember to keep the beneficiary clause updated. You can change your beneficiary clause anytime by informing your insurance company about it in writing.
Read more about life insurance beneficiaries
Read more about taxation of life insurance
Compensation paid to the beneficiaries named by the holder of an insurance policy, based on the policy’s death cover. In term life insurance, the death benefit is based on the agreed sum insured. In endowment insurance and voluntary pension insurance, the death benefit is based on the value of the insurance assets. Other insurance policies, such as medical expenses insurance, may also include death cover.
Read how to apply for death benefit under life insurance
Read more about life insurance beneficiaries
Saving through insurance is a form of long-term saving and investing that combines saving and life insurance. Within unit-linked insurance, you can split your savings between several investment products, such as funds, bonds and investment baskets. Return accrued on the insurance will not be taxed when switching between investments but it will generate additional return during the entire saving period. When the insured person dies, the assets accrued will be paid as death benefit to the beneficiaries chosen by the policyholder.