Glossary of Terms

Asset allocation involves dividing your investments among different assets, such as stocks, bonds, and cash. The asset allocation decision is a personal one. The allocation that works best for you changes at different times in your life, depending on how long you have to invest and your ability to tolerate risk. 

A benchmark is a standard or measure that can be used to analyze the allocation, risk, and return of a given portfolio. Individual funds and investment portfolios will generally have established benchmarks for standard analysis. A variety of benchmarks can also be used to understand how a portfolio is performing against various market segments. 

A capital gain is an increase in the value of an asset or investment resulting from the price appreciation of the asset or investment. Capital gains are attributable to all types of capital assets, including, but not limited to, stocks bonds, goodwill and real estate.

A distribution generally refers to the disbursement of assets from a fund, account, or individual security to an investor. Mutual fund distributions consist of net capital gains made from the profitable sale of portfolio assets, along with dividend income and interest earned by those assets.

A technique that reduces risk by allocating investments across various financial instruments, industries and other categories. Aims to minimize losses by investing in different areas that would each react differently to the same event.

A dividend is a distribution of earnings, often quarterly, by a company to its shareholders in the form of cash or stock reinvestment

ETFs or “exchange-traded funds” are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure, while helping to diversify your portfolio.

A growth fund is a mutual fund or exchange traded fund (ETF) that includes companies primed for revenue or earnings growth at a pace that is faster than that of either industry peers or the market. Growth funds are separated into small-, mid-, and large-cap. Most Growth funds are high-risk, high-reward overall.

Halal investing is a religious form of investing that complies with Islamic law or Shariah. Islamic scholars help shape halal investing guidelines around topics such as interest, debt, risk and social responsibility.

Forbidden or proscribed by Islamic law. Investments in specific industries are prohibited by Islamic law. These include alcohol, adult entertainment, gambling, weapons manufacturing, traditional finance and pork products. Many Islamic scholars also advise against investing in the tobacco industry.

An “index fund” is a type of mutual fund or exchange-traded fund that seeks to track the returns of a market index. The S&P 500 Index, the Russell 2000 Index, and the Wilshire 5000 Total Market Index are just a few examples of market indexes that index funds may seek to track.

An Islamic Index is based on an MSCI or Dow Jones Equity Index, but excludes all the non-compliant securities in accordance with Islamic law. The Islamic Indexes exclude non-Shari’ah-compliant securities through business activity screening and financial ratio screening.

On average, large-cap corporations—those with market capitalizations of US$10 billion and greater—tend to grow more slowly than mid-cap companies. Mid-cap companies are those with capitalization between $2 and $10 billion, while small-cap corporations have between $300 million and $2 billion.

A no-load fund is a mutual fund in which shares are sold without a commission or sales charge. This absence of fees occurs because the shares are distributed directly by the investment company, instead of going through a secondary party. 

A portfolio is a collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end and Exchange-traded funds (ETFs).

Principal is most commonly used to refer to the original sum of money borrowed in a loan or put into an investment. It can also refer to the face value of a bond, the owner of a private company, or the chief participant in a transaction.

Riba is an Arabic word that means “to increase” or “to exceed” and is commonly used in reference to unequal exchanges or charges and fees for borrowing. Interest is deemed riba, or an unjust, exploitative gain, and such practice is forbidden under Islamic law.

A sukuk is an Islamic financial certificate, similar to a bond in Western finance, that complies with Islamic religious law commonly known as Shari’ah.

An Islamic endowment of property to be held in trust and used for a charitable or religious purpose.

A Muslim religious or charitable foundation created by an endowed trust fund.

A transaction in which a customer receives back money he/she had previously deposited at a bank, investment, pension, or trust.

zakat, Arabic zakāt, an obligatory tax required of Muslims, one of the five Pillars of Islam. The zakat is levied on five categories of property—food grains; fruit; camels, cattle, sheep, and goats; gold and silver; and movable goods—and is payable each year after one year’s possession.