ETF investing glossary: from TER to dividend leakage

Short explanations of the terms you meet in the calculator, in the worked examples and when comparing funds. Looking for a place to begin? See Getting started with investing. Jump to: Basics · Costs · Funds · Tax · Stock terms

All terms

Term	Meaning
Basics
ETF	An ETF (exchange traded fund) is an investment fund you buy and sell on the stock exchange, like a share.
Index fund	A fund that aims to follow an index rather than choose investments independently.
Index	A rules-based measure of a market or group of investments, such as shares or bonds, with rules for which investments count and how much.
UCITS	UCITS is an EU-regulated type of investment fund subject to rules on assets, diversification, oversight and investor information.
ISIN	A twelve-character code that identifies one security worldwide.
Investment horizon	How long you want to leave your money invested before you need it.
Regular investing	Investing a fixed amount at fixed moments, for example every month.
Compound return	Return on return, also known as compounding: what you earned earlier grows along with the rest.
Gross and net	In the calculator, gross is the balance without fund costs and net is the balance after the ongoing costs (TER).
Inflation and purchasing power	Inflation is a broad rise in prices across goods and services; it usually reduces what the same amount of money can buy.
Return	What an investment earns over a period, as a percentage; it can also be negative.
Broker	The company through which you buy and sell ETFs and stocks.
Portfolio	Everything you have invested in, taken together.
Benchmark	A standard index against which the performance, composition and risk of an investment fund are measured.
Bonds	A debt security where an investor loans money to a government or company in return for fixed or variable interest.
Contribution	The addition of new money to an investment account, for example monthly.
Limit order	An order to buy or sell a security only at a specified price or better.
Liquidity	How quickly and easily an asset can be bought or sold without significantly affecting its price.
Market capitalisation	The total market value of a company’s outstanding shares.
Total return	The combined return of share price movements and dividend income.
Volatility	The degree of variation in the price of an investment over time.
Asset	An item with economic value, such as cash, shares or real estate, held in an investment portfolio.
Asset allocation	Dividing an investment portfolio across broad categories such as stocks, bonds and cash.
Asset class	A group of investments with similar financial characteristics, such as stocks, bonds or cash.
Basis point	One-hundredth of a percentage point (0.01%), used to express small fee or yield differences.
Bear market	A prolonged period of falling asset prices and investor pessimism, often down 20% or more.
Bull market	A sustained period of rising asset prices driven by economic growth and optimism.
Standard deviation	A statistical measure of how widely returns fluctuate around their average over time.
Recession	A significant, widespread contraction in overall economic activity across an economy.
Deflation	A persistent and broad decline in the general price level of goods and services.
Stagflation	An economic condition characterized by stagnant economic growth alongside high inflation.
Foreign-exchange rate	The price at which one currency can be exchanged for another.
Costs
TER (ongoing costs)	TER is a yearly measure of a fund’s ongoing operating expenses as a percentage of assets. It does not include every trading or investor cost.
Fee erosion	What fund costs take over the whole horizon: the difference between the gross and the net balance in the calculator.
Transaction costs	Transaction costs can arise when you buy or sell via a broker and when a fund trades investments internally; their treatment can differ.
Spread	The difference between the price at which you can buy on the exchange (ask) and the price at which you can sell (bid).
Currency costs	Costs for exchanging money when you buy a fund in a currency other than your account’s, for example a listing in dollars.
Dividend leakage	Dividend leakage is dividend withholding tax paid within a fund that the fund cannot reclaim; it can reduce the fund’s return.
Tracking difference	The difference between a fund’s return and the return of the index it follows, over a period.
Market maker	A financial firm that continuously provides buy and sell prices to ensure market liquidity.
Tracking error	The volatility of the return differences between an ETF and its benchmark index.
Currency risk	The risk that exchange rate shifts reduce the converted value of foreign investments.
Currency hedging	Using derivative contracts to neutralize the impact of exchange rate fluctuations.
Funds
Accumulating	An accumulating fund does not pay out dividends but reinvests them in the fund.
Distributing	A distributing fund pays out dividends, for example every quarter.
Domicile	The country where a fund is legally based, such as Ireland or Luxembourg.
Key information document (KID)	For covered packaged retail investment products, a KID is a short pre-contract document describing the product, risks, potential outcomes and costs (up to three A4 sides).
Physical and synthetic replication	Physical replication holds all or a sample of index securities. Synthetic replication uses derivatives, usually swaps, to obtain index returns and involves counterparty risk.
Share class	The same fund in a different version, such as accumulating or distributing.
Ticker	A short trading code for a fund on one exchange.
Issuer	The issuer or provider is the organisation responsible for bringing a fund to market. The fund’s appointed manager may be a separate entity.
Factsheet	The fund provider’s own summary of the fund’s key figures.
Base currency	The official accounting currency of an ETF, distinct from the trading currency on an exchange.
Developed markets	Countries with mature economies, high income levels, and established financial markets.
Emerging markets	Rapidly growing economies with developing financial markets.
Fund size (AUM)	The total market value of assets held in an investment fund.
PRIIPs	The EU regulatory framework governing consumer disclosure and Key Information Documents.
Prospectus	The formal legal document describing a fund’s objectives, policies, fees and terms.
Rebalancing	The periodic adjustment of securities within an index or portfolio back to target allocations.
Risk indicator	A standardized numerical scale from 1 to 7 measuring market and credit risk.
Securities lending	The temporary loan of portfolio shares to institutional borrowers in exchange for collateral and a fee.
Small caps	Public companies with a relatively small market capitalisation.
Active fund management	An investment strategy where managers actively select holdings to attempt to beat a benchmark.
Passive fund management	An investment strategy that seeks to mirror the performance and composition of an index.
Authorised participant	A financial institution authorized to create and redeem ETF shares directly with the issuer.
Creation unit	A large block of ETF shares used in primary market transactions between issuers and institutions.
Net asset value (NAV)	The total value of a fund’s assets minus liabilities, divided by outstanding shares.
ETF premium to NAV	When an ETF’s exchange trading price is higher than its underlying net asset value.
ETF discount to NAV	When an ETF’s exchange trading price is lower than its underlying net asset value.
Counterparty risk	The risk that a contractual partner fails to meet financial obligations or becomes insolvent.
Government bond	A debt security issued by a sovereign government to raise public capital.
Corporate bond	A debt security issued by a corporation to raise capital for business activities.
Bond coupon	The stated annual interest rate paid by a bond issuer to investors.
Par value (bond)	The nominal face amount of a bond returned to the investor at maturity.
Maturity date	The date on which a bond’s principal must be fully repaid to investors.
Floating-rate bond	A bond whose coupon rate resets periodically based on a reference benchmark.
Fixed-rate bond	A bond that pays an unchanging, predetermined coupon rate throughout its life.
Zero-coupon bond	A bond that pays no periodic coupons and is issued at a discount to par value.
Investment-grade bond	A bond rated BBB- or higher, indicating a relatively low risk of default.
High-yield bond	A bond rated below investment grade that pays a higher yield to offset higher default risk.
Yield to maturity	The total annual return anticipated on a bond if held to its final maturity date.
Credit risk	The risk that a bond issuer or borrower fails to make scheduled interest or principal payments.
Interest-rate risk	The risk that rising market interest rates reduce the capital value of existing bonds.
Credit rating	An agency assessment of a borrower’s creditworthiness and default risk.
Default	Failure of a borrower or issuer to make required debt payments when due.
Alpha	The excess return of an investment relative to its benchmark, adjusted for risk.
Beta	A measure of an asset’s sensitivity and volatility relative to the overall market.
Environmental, social and governance (ESG)	Environmental, social and governance standards used to evaluate sustainability in investments.
Tax
Box 3	The part of Dutch income tax for savings and investments.
Tax-free allowance	The tax-free allowance is a threshold used in the standard Dutch Box 3 calculation; its treatment differs under the actual-return method.
Dividend tax	Dividend withholding tax is tax a paying company may have to deduct from a dividend; the applicable rules and exemptions depend on the jurisdiction.
Fiscal investment institution (FBI)	A Dutch fiscal investment institution (FBI) meeting statutory conditions can qualify for a zero rate of corporate income tax. A profit-distribution requirement applies.
Stock terms
Stock (share)	A small piece of ownership in a company.
Shareholder	Someone who owns one or more stocks of a company, and so a small part of that company.
Exchange	The market where stocks and ETFs are bought and sold, through a broker.
Share price	The price of a stock or ETF at a given moment.
Dividend	A part of the profit that a company pays out to its shareholders.
Concentration risk	The risk that a large part of your money is in one company or one part of the market.
Diversification	Diversification spreads money across different investments. It can reduce the effect of a single loss but cannot prevent a portfolio from falling.
Dividend yield	A company’s or fund’s annual dividend payout expressed as a percentage of its current share price.
Ex-dividend date	The date on which a security begins trading without the right to the upcoming dividend.
Bid price	The highest price a buyer is currently willing to pay for a security on an exchange.
Ask price	The lowest price a seller is currently willing to accept for a security.
Market order	An order to buy or sell immediately at the prevailing available market price.
Stop-loss order	An order that triggers a market sale once a predetermined price threshold is reached.
Stop-limit order	An order that places a limit order once a specified stop price is triggered.
Primary market	The market where new securities are originally created and issued to investors.
Secondary market	The exchange where investors buy and sell existing securities among themselves.
Derivative	A financial contract whose value is derived from an underlying asset, index or rate.
Underlying asset	The primary security, index or commodity upon which a financial contract or fund is based.
Futures contract	A standardized agreement to trade an asset at a predetermined price on a future date.
Option contract	A contract giving the holder the right to buy or sell an asset at a set strike price.
Large-cap shares	Shares of large, established corporations with market values typically over €10 billion.
Mid-cap shares	Shares of medium-sized public companies positioned between large caps and small caps.
Commodity	A basic standardized physical good or raw material traded on financial exchanges.
Cash flow	The net amount of actual cash moving into and out of a business during a period.
Net income	A company’s total profit after subtracting all operating costs, interest and taxes.
Earnings per share (EPS)	A company’s net profit divided by the total number of outstanding shares.
Price-to-earnings ratio (P/E)	A valuation ratio comparing a company’s stock price to its earnings per share.
Short selling	Selling borrowed securities with the intent to repurchase them later at a lower price.
Long position	Owning an investment asset with the expectation that its value will increase.
Solvency	A company’s financial capacity to meet its long-term debts and commitments.

What are the basic terms for beginner ETF investors?

ETF

An ETF (exchange traded fund) is an investment fund you buy and sell on the stock exchange, like a share. Most ETFs follow an index and buy the shares or bonds in that index, or a representative selection of them. The price changes during the trading day.

Index fund

A fund that follows an index instead of picking shares itself. An ETF is often an index fund, but there are also index funds that are not traded on an exchange. You buy those from the provider directly, usually at one price a day.

Index

A list of companies with rules for how much each one counts, such as the MSCI World or the FTSE All-World. You cannot buy an index itself, but you can buy a fund that follows it. Different indexes have different returns and risks.

UCITS

The European framework for investment funds offered to retail investors in the EU, with rules on diversification, supervision and information. UCITS funds have a key information document. US ETFs usually do not, so they are not offered to retail investors in the EU. That is why the calculator lists only UCITS funds. Read what UCITS requires.

ISIN

A twelve-character code that identifies one security worldwide. The first two letters give the country, for example IE for Ireland. With the ISIN you find the right fund at a broker or in documents, even when it has a different ticker on different exchanges.

Investment horizon

How long you want to leave your money invested before you need it. In the calculator this is the horizon, from 1 to 40 years. The longer the horizon, the more time a fall has to recover. It gives no certainty.

Regular investing

Investing a fixed amount at fixed moments, for example every month. You then buy at high and at low prices and do not have to choose when to start. The calculator adds the monthly contribution at the end of each month. See the example €100 a month.

Compound return

Return on return, also known as compounding: what you earned earlier grows along with the rest. At a fixed percentage an amount therefore grows faster and faster, not in a straight line. The calculator works per month; 6% a year becomes 0.5% a month. More under How it works.

Gross and net

In the calculator, gross is the balance without fund costs and net is the balance after the ongoing costs (TER). Other costs and tax are in neither. The difference between gross and net is the fee erosion.

Inflation and purchasing power

Inflation is the rise in prices. Because of inflation the same amount buys less later: purchasing power falls. In the calculator you can choose an inflation rate per year under ‘Advanced’ to see the amounts in today’s money. That is an assumption, not real inflation figures. Without it, a final amount 30 years from now is worth less than the same amount today.

Return

What an investment earns over a period, as a percentage: price changes plus dividends, whether reinvested or paid out. A return can be negative, and it differs from year to year. In the calculator the return is a figure you choose; see gross and net for what is left after fund costs. Past returns say nothing certain about the future.

Broker

The company through which you buy and sell ETFs and stocks on an exchange. Brokers differ in what they charge per trade and in other costs such as currency costs. The calculator lists brokers in neutral order; that list is information, not a recommendation.

Portfolio

Everything you have invested in, taken together: all your funds and stocks. A broad ETF is itself a small portfolio of many companies. How a portfolio is spread is what diversification is about.

Benchmark

A benchmark is a standard index against which the performance, composition and risk of an investment fund are measured. For a passive index ETF, the benchmark is the specific index it aims to replicate as closely as possible. For example, the MSCI World index serves as the benchmark for ETFs that track developed-market equities. See also MSCI World.

Bonds

A bond is a loan to a government or corporation that pays a defined interest rate over a fixed period and repays the principal at maturity. In an investment portfolio, bonds generally fluctuate less than shares and offer lower long-term expected returns. For example, many investors hold government bonds alongside equity ETFs to dampen portfolio swings. See also Market crash simulator.

Contribution

A contribution is the addition of new money to an investment account, either as a one-off deposit or through regular payments. In compound growth calculations, adding contributions steadily expands the base on which returns are earned. For example, depositing €100 each month over 20 years builds an invested sum of €24,000 in personal contributions before any returns or fees. See also ETF Calculator.

Limit order

A limit order is an order sent to a broker to buy or sell a security only at a specified price or better. It protects an investor from executing trades at unexpected prices during market fluctuations. For example, placing a limit order to purchase an ETF share at €80 prevents the trade from completing if the market price suddenly moves to €82. See also What is a stock?.

Liquidity

Liquidity refers to how quickly and easily an asset or fund can be bought or sold on the market without causing a major shift in its price. For ETFs, liquidity is provided both by trading volume on the exchange and by the underlying liquidity of the securities in the index. For example, large global equity ETFs typically have high liquidity, which allows trades to execute quickly with tight spreads. See also S&P 500.

Market capitalisation

Market capitalisation is the total market value of a company’s outstanding shares, calculated by multiplying the current share price by the number of shares. Most broad index ETFs weight their holdings according to free-float market capitalisation, giving larger companies a proportionately larger weight. For example, a company worth €500 billion weighs ten times more in the index than a company worth €50 billion. See also MSCI World.

Total return

Total return is the complete performance of an investment over a period, combining both share price changes (capital gains or losses) and any dividend distributions. In an accumulating ETF, the total return is reflected entirely in the share price development because dividends are automatically reinvested into the fund. For example, a 3% share price gain and a 2% dividend yield gives a total return of about 5% before costs and taxes. See also FTSE All-World High Dividend.

Volatility

Volatility measures how strongly and rapidly the price of an investment moves up and down over a given period. Higher volatility indicates larger and faster price fluctuations, though it does not indicate the direction of future long-term returns. For example, a diversified equity ETF has higher historical volatility than a bank savings account, meaning its value can rise or drop substantially in the short term. See also How to read a factsheet.

Asset

An asset is any tangible or intangible item that possesses economic value, such as cash, company shares, or real estate. In investing, assets form the fundamental building blocks of an investment portfolio. For example, an equity ETF holds individual company shares as its underlying assets. See also What is a stock?.

Asset allocation

Asset allocation is the strategy of dividing an investment portfolio across broad asset categories, such as equities, bonds, and cash. It balances potential return against risk tolerance and investment time horizon. For example, an investor might allocate 40% of their portfolio to bonds and 60% to equities. See also Risk and diversification.

Asset class

An asset class is a grouping of investments that share similar financial characteristics, regulatory rules, and market behaviors. The traditional core asset classes are equities, fixed-income bonds, cash equivalents, and commodities. For example, equities and bonds represent two distinct asset classes that often respond differently to economic cycles. See also What is an ETF?.

Basis point

A basis point is a standard unit of measure equal to one-hundredth of one percentage point (0.01% or 0.0001). It is widely used in finance to describe interest rate changes, bond yields, and fund fee differences with precision. For example, a difference in fund ongoing costs from 0.07% to 0.22% represents 15 basis points. See also What does an ETF cost?.

Bear market

A bear market is an extended period during which broad financial market prices decline, typically characterized by widespread investor pessimism and a drop of 20% or more from recent peaks. Bear markets are standard phases of economic and market cycles rather than permanent disruptions. For example, global equities experienced a prolonged bear market following the burst of the dot-com bubble in 2000. See also Dot-com bubble.

Bull market

A bull market is an extended period of rising security prices accompanied by investor confidence and general economic growth. During a bull market, asset valuations often expand alongside corporate profits across broad market sectors. For example, broad equity indexes may post multi-year gains during a sustained bull market recovery. See also Dot-com bubble.

Standard deviation

Standard deviation is a statistical metric that measures the historical dispersion of an investment’s returns around its average return over time. In finance, higher standard deviation indicates wider swings in performance and therefore greater historical volatility. For example, a global equity ETF factsheet often publishes its three-year annualized standard deviation to help investors understand price fluctuations. See also How to read a factsheet.

Recession

A recession is a significant and widespread decline in economic activity across an economy, commonly identified by consecutive quarters of negative gross domestic product growth. During recessions, industrial output decreases, corporate earnings often contract, and unemployment typically increases. For example, equity markets often experience heightened volatility before and during economic recessions. See also Dot-com bubble.

Deflation

Deflation is a persistent and generalized decrease in the overall price level of goods and services across an economy. Unlike a temporary price drop in a single sector, deflation increases the purchasing power of money over time but can encourage consumers to postpone spending and increase real debt burdens. For example, central banks target low, positive inflation rates specifically to avoid harmful deflationary spirals. See also Inflation and your savings.

Stagflation

Stagflation is an economic situation that combines stagnant economic output and high unemployment with stubbornly elevated inflation rates. This combination poses significant challenges for policymakers because actions intended to curb inflation may further slow economic growth. For example, stagflation can compress corporate profit margins across broad equity sectors while reducing the real purchasing power of cash holdings. See also Inflation and your savings.

Foreign-exchange rate

A foreign-exchange rate is the price of one country’s currency expressed in terms of another currency. Exchange rates fluctuate continuously on international currency markets driven by interest rate differentials, economic trade, and inflation trends. For example, an exchange rate of 1.08 EUR/USD means one euro exchanges for 1.08 US dollars. See also Currency risk in USD funds.

What costs and fees should you understand?

TER (ongoing costs)

The Total Expense Ratio, also called ongoing charges: what a fund costs per year, as a percentage of the amount invested. You do not pay it separately; it comes off the fund’s assets continuously and is reflected in the price. At 0.14% and €10,000 invested that is about €14 a year. The calculator takes the TER off the return every month.

Fee erosion

What fund costs take over the whole horizon: the difference between the gross and the net balance in the calculator. It includes the return the lost money would otherwise have earned, so it is larger than the yearly costs added up. See Fee levels compared.

Transaction costs

What a broker charges per purchase or sale: a fixed amount, a percentage or both. With small monthly amounts a fixed fee weighs heavily: €1 on a €100 purchase is 1%. The calculator leaves transaction costs out.

Spread

The difference between the price at which you can buy on the exchange (ask) and the price at which you can sell (bid). You pay it without noticing on every trade. For large, heavily traded ETFs the spread is usually small. Not in the calculator.

Currency costs

Costs for exchanging money when you buy a fund in a currency other than your account’s, for example a listing in dollars. Brokers often charge a percentage for this. Separately, a global fund moves with other currencies even when you buy it in euros. Not in the calculator.

Dividend leakage

Companies pay dividends, and the company’s country often withholds tax on them. Whatever a fund cannot reclaim is lost: that is dividend leakage. How much it is depends on where the fund is based (domicile) and what it invests in. It is not in the TER and not in the calculator.

Tracking difference

The difference between a fund’s return and the return of the index it follows, over a period. It includes the ongoing costs, but also other effects such as dividend leakage and income from lending out shares. It can therefore be larger or smaller than the TER.

Market maker

A market maker is a specialized financial institution contracted to provide liquidity on stock exchanges by continuously quoting bid and ask prices. For ETFs, market makers help ensure that investors can buy or sell shares throughout the trading day at prices close to the fund’s underlying value. For example, active competition among market makers helps keep the trading spread narrow for large global ETFs. See also What does an ETF cost?.

Tracking error

Tracking error is the annualized standard deviation of the return differences between an ETF and its benchmark index. While tracking difference measures the total net difference in returns over a full period, tracking error measures how consistently and closely the fund follows the index day by day. For example, a very low tracking error shows that an ETF tracks its benchmark smoothly without erratic deviations. See also What does an ETF cost?.

Currency risk

Currency risk is the exposure to potential investment losses resulting from fluctuations in exchange rates between foreign currencies and an investor’s home currency. When an investor in euros holds assets denominated in US dollars, changes in the EUR/USD exchange rate directly alter the euro return. For example, if the US dollar weakens relative to the euro, the converted value of US investments decreases even if their local share price remained unchanged. See also Currency risk in USD funds.

Currency hedging

Currency hedging is an investment technique that uses derivative contracts, such as forward contracts, to offset the impact of foreign exchange movements on international investments. While currency-hedged ETF share classes reduce volatility from currency swings, they introduce ongoing hedging costs and cash drag. For example, a euro-hedged S&P 500 ETF shields a European investor from dollar depreciation while charging a slightly higher expense structure. See also Currency risk in USD funds.

How do fund structures and ETF classifications work?

Accumulating

An accumulating fund does not pay out dividends but reinvests them in the fund. You see it in the price instead of as a payment into your account. The calculator assumes all income is reinvested.

Distributing

A distributing fund pays out dividends, for example every quarter. If you want that money to keep growing, you have to reinvest it yourself.

Domicile

The country where a fund is legally based, such as Ireland or Luxembourg. The domicile helps decide how much tax the fund pays on dividends it receives, and so the dividend leakage. You can usually read it from the first two letters of the ISIN.

Key information document (KID)

A required document of at most three A4 pages about an investment product; in Dutch the Essentiële-informatiedocument (Eid). It shows the costs, a risk indicator on a scale of 1 to 7 and example scenarios. The Dutch regulator AFM explains it (in Dutch).

Physical and synthetic replication

A physically replicating fund buys the shares in the index: all of them, or a representative selection. A synthetic fund gets the index return through an exchange contract (swap) with another party, and so also carries risk on that party.

Share class

One fund can offer the same portfolio in more than one version, called share classes. A common pair is an accumulating class and a distributing class: they hold the same investments and differ in what happens to the dividends.

Ticker

A short code for a fund or stock on one exchange. The same fund can have different tickers on different exchanges or in different currencies. The ISIN is the code that does not change.

Issuer

The company that sets up and runs a fund and publishes its documents, such as Vanguard or iShares. The issuer is where the factsheet and the KID come from.

Factsheet

The fund’s own summary of its key figures: costs, size, largest holdings and past returns. It is a good place to check a fund before you rely on a figure. More in How to read a factsheet.

Base currency

The base currency is the primary accounting currency in which an ETF holds its assets, calculates its net asset value, and prepares financial reports. It can differ from the trading currency in which shares are bought and sold on a European exchange. For example, an ETF with the US dollar as its base currency can trade in euros on Euronext Amsterdam. See also FTSE All-World.

Developed markets

Developed markets are countries with advanced economies, high gross national income, and mature capital markets with established legal and regulatory frameworks. Major examples include the United States, Japan, the United Kingdom, and euro-area nations. For example, the MSCI World index tracks large and mid-sized companies located exclusively in 23 developed market countries. See also MSCI World.

Emerging markets

Emerging markets are nations undergoing rapid economic development and industrialization whose financial markets are expanding but may feature greater volatility or lower liquidity than developed markets. Prominent examples include countries such as India, Brazil, and Taiwan. For example, an all-world index ETF such as the FTSE All-World combines emerging markets with developed markets to cover the entire global equity landscape. See also FTSE All-World.

Fund size (AUM)

Fund size, commonly called Assets Under Management (AUM), is the total market value of all investments managed by a fund. Larger funds can spread fixed costs over more money, and a very small fund is more likely to be closed or merged by its issuer. A factsheet shows the fund size. See also How to read a factsheet.

PRIIPs

PRIIPs (Packaged Retail and Insurance-based Investment Products) is the EU regulatory framework requiring issuers to provide a standardized Key Information Document (KID) before retail investors purchase an investment product. It standardizes how risks, ongoing costs, and performance scenarios are disclosed across the European Union. For example, under PRIIPs rules, US-domiciled ETFs cannot be offered to European retail investors without a KID in the EU format. See also How to read a factsheet.

Prospectus

A prospectus is an official, legally binding document published by an ETF provider detailing the fund’s investment policy, risk profile, fee structure, and operational terms. While a KID provides a concise summary for retail investors, the prospectus contains the comprehensive legal foundation of the fund. For example, an investor seeking exact rules on index replication methods or counterparty lending limits can review the fund’s formal prospectus. See also ETFs.

Rebalancing

Rebalancing is the process of adjusting the weights of holdings within an index or investment portfolio back to their targeted allocations. Index providers review an index on set dates, often quarterly, to add or remove companies and to update share counts and free float. In a market-value-weighted index, price moves change the weights by themselves, so no trading is needed for those. See also MSCI World.

Risk indicator

The Summary Risk Indicator (SRI) is a mandatory rating from 1 (lowest risk) to 7 (highest risk) published in every European Key Information Document. It combines market price fluctuations with credit risk to give retail investors a consistent measure of potential capital loss. For example, broad global equity ETFs typically carry a risk indicator score of 4 on the 1-to-7 scale. See also How to read a factsheet.

Securities lending

Securities lending is the temporary transfer of shares from a fund to a financial counterparty in exchange for collateral and a lending fee. The net revenues generated are often returned to the fund, which can offset a portion of its ongoing operating costs. For example, an ETF lending out a fraction of its portfolio holdings may earn income that slightly narrows its tracking difference relative to the index. See also What does an ETF cost?.

Small caps

Small caps are publicly traded companies with a relatively small market capitalisation compared to established large corporations. While standard large- and mid-cap indices exclude them, all-cap funds include small caps to achieve wider market representation. For example, the FTSE Global All Cap index includes thousands of small-cap companies alongside large and mid-sized firms. See also FTSE Global All-Cap.

Active fund management

Active fund management is an investment approach where fund managers actively select individual securities aiming to outperform a specific benchmark. This approach relies on analytical research, forecasts, and regular portfolio turnover, which typically results in higher ongoing costs than index funds. For example, an actively managed fund may underweight certain index companies that its managers expect to lag the market. See also What is an ETF?.

Passive fund management

Passive fund management is an investment approach that tracks a predetermined index or rules-based market basket instead of selecting securities through subjective forecasting. Because passive funds trade infrequently and require no forecasting team, their management fees are generally substantially lower than active funds. For example, a passive ETF tracking the MSCI World automatically mirrors the index constituents rather than picking individual winners. See also What is an ETF?.

Authorised participant

An authorised participant is a large institutional financial entity contracted with an ETF issuer with the exclusive right to create and redeem ETF shares in primary market blocks. APs arbitrage price differences between the ETF trading price and the value of underlying securities, keeping market prices close to net asset value. For example, if an ETF trades at a premium, an AP creates new shares to meet demand and narrow the gap. See also What is an ETF?.

Creation unit

A creation unit is a standard large block of ETF shares—often tens of thousands of shares—used when an authorised participant creates or redeems shares directly with the fund sponsor. Retail investors buy individual ETF shares on the secondary exchange, while creation units exist solely in institutional primary trading. For example, an authorised participant delivers a basket of underlying equities to receive one creation unit from the ETF. See also What is an ETF?.

Net asset value (NAV)

Net asset value (NAV) is the total market value of a fund’s portfolio holdings minus its liabilities, calculated per outstanding share at the end of each valuation day. While conventional mutual funds trade once daily at NAV, ETF share prices trade continuously on exchanges and may diverge slightly from NAV. For example, a fund’s factsheet reports official performance calculated using its end-of-day NAV. See also How to read a factsheet.

ETF premium to NAV

An ETF trades at a premium when its secondary market trading price on the stock exchange exceeds its underlying net asset value per share. Premiums typically occur when immediate buying demand outpaces short-term creation capacity or when underlying foreign markets are closed. For example, an ETF might trade at a 0.20% premium if buyers actively bid up exchange shares during market turbulence. See also What does an ETF cost?.

ETF discount to NAV

An ETF trades at a discount when its market price on the exchange is lower than its underlying net asset value per share. Discounts frequently arise during heavy selling pressure or when illiquidity in underlying assets temporarily lags secondary exchange trading. For example, authorised participants will step in to redeem shares when a persistent discount creates an arbitrage opportunity. See also What does an ETF cost?.

Counterparty risk

Counterparty risk is the hazard that a party entering into a financial contract will default or become insolvent before fulfilling its contractual commitments. In ETF structures, counterparty risk is particularly relevant for synthetic replication funds that rely on swap agreements and for funds engaged in securities lending. For example, UCITS regulations require synthetic ETFs to hold collateral from swap counterparties to limit potential losses. See also What is an ETF?.

Government bond

A government bond is a debt security issued by a national government to finance public spending and infrastructure projects. Investors lend money to the government in return for regular coupon interest payments and the return of face value upon maturity. For example, euro-area government bond ETFs hold sovereign debt from countries like Germany, France, and the Netherlands. See also Market crash simulator.

Corporate bond

A corporate bond is a debt instrument issued by a private or public corporation to raise funding for business operations, research, or expansions. Because companies carry greater default risk than stable national governments, corporate bonds typically offer higher interest coupon rates. For example, a broad corporate bond ETF holds hundreds of bonds issued by diverse industrial and financial corporations. See also Market crash simulator.

Bond coupon

A bond coupon is the contractual annual interest rate that a bond issuer agrees to pay to the bondholder, expressed as a percentage of the bond’s par value. Payments may occur annually, semi-annually, or quarterly according to the bond prospectus. For example, a bond with a €1,000 face value and a 3% annual coupon pays €30 in interest each year. See also Compounding calculator.

Par value (bond)

Par value is the stated principal amount of a bond that the issuer promises to return to the investor upon reaching its maturity date. While a bond trades on the open exchange above or below par due to market rate movements, final repayment is calculated on par value. For example, a bond purchased on the secondary market for €980 matures and repays its full par value of €1,000. See also What is a stock?.

Maturity date

The maturity date is the agreed calendar date on which a bond’s principal amount becomes due and is refunded in full by the borrower, ending the loan agreement. Once a bond matures, all coupon payments cease and the obligation is settled. For example, a 10-year government bond issued in 2026 reaches its maturity date in 2036. See also Compounding calculator.

Floating-rate bond

A floating-rate bond is a debt security whose coupon interest rate adjusts periodically based on an external benchmark reference rate, such as Euribor, plus a fixed spread. Because the coupon resets with prevailing interest rates, the bond’s market price remains relatively stable during interest rate cycles. For example, a bond resetting quarterly in line with short-term money market rates carries minimal interest-rate risk. See also Market crash simulator.

Fixed-rate bond

A fixed-rate bond is a debt instrument that pays a constant, unvarying interest rate throughout its entire term to maturity. Investors receive predictable income payments regardless of future changes in market interest rates or economic inflation. For example, a 5-year fixed-rate bond with a 2.5% coupon pays exactly that percentage every year until repayment. See also Market crash simulator.

Zero-coupon bond

A zero-coupon bond is a debt security that pays no regular interest coupons during its lifespan. Instead, it is issued at a deep discount to its par value, and the investor’s return consists entirely of the difference between the purchase price and the full par value repaid at maturity. For example, an investor buying a zero-coupon bond at €800 receives €1,000 at maturity, generating €200 in total return. See also Market crash simulator.

Investment-grade bond

An investment-grade bond is a debt issue rated BBB- or higher by Standard & Poor’s or Baa3 or higher by Moody’s, reflecting a relatively low assessed probability of default. Many pension funds and regulated ETF mandates hold only investment-grade securities to control portfolio credit risk. For example, an investment-grade bond ETF invests exclusively in issuers with solid balance sheets and high credit ratings. See also Risk and diversification.

High-yield bond

A high-yield bond carries a credit rating below BBB-, indicating a higher risk of issuer default. To compensate investors for this elevated default risk, issuers must pay substantially higher coupon yields than investment-grade borrowers. For example, a high-yield corporate bond ETF offers higher income potential while exposing capital to greater downside during economic downturns. See also Risk and diversification.

Yield to maturity

Yield to maturity is the total annual rate of return anticipated on a bond if it is held until its final maturity date, assuming all coupon payments are made and reinvested at the same rate. YTM accounts for the bond’s current market price, par value, coupon rate, and remaining time to maturity. For example, a bond trading at a discount offers a yield to maturity higher than its stated coupon rate. See also Compounding calculator.

Credit risk

Credit risk is the probability that a borrower or bond issuer will fail to meet scheduled interest payments or repay principal when due. Bonds issued by entities with weaker financial conditions carry higher credit risk and must offer higher yields to attract capital. For example, corporate bonds generally carry more credit risk than debt issued by stable national governments. See also Risk and diversification.

Interest-rate risk

Interest-rate risk is the risk that changes in general market interest rates will adversely affect the market value of existing fixed-income bonds. Because bond prices move inversely to interest rates, rising market yields cause the capital value of existing fixed-rate bonds to decline. For example, a bond fund holding long-term bonds typically experiences greater price swings when central banks adjust interest rates. See also Risk and diversification.

Credit rating

A credit rating is an independent evaluation of the creditworthiness of a borrower or bond issuer provided by specialized rating agencies such as S&P, Moody’s, and Fitch. Expressed as standardized letter grades, credit ratings assist investors in evaluating default risk. For example, sovereign issuers carrying an AAA rating are considered to possess the highest capacity to meet financial obligations. See also How to read a factsheet.

Default

Default occurs when a debtor or bond issuer fails to make scheduled interest payments or repay principal on the contractual due date. A default can lead to debt restructuring, legal bankruptcy proceedings, or permanent loss of invested capital for bondholders. For example, broad diversification across bond issuers helps limit the impact of an isolated issuer default on a portfolio. See also Risk and diversification.

Alpha

Alpha measures the excess return of an investment strategy relative to the return of a benchmark index, after adjusting for market risk. A positive alpha indicates that a portfolio manager outperformed expectations given the risk taken, while negative alpha indicates underperformance. For example, an active fund returning 7% in a year when its risk-adjusted benchmark returned 5% generated positive alpha. See also What is an ETF?.

Beta

Beta measures the sensitivity and volatility of an individual stock or fund relative to the systematic movements of the broader market or benchmark. A beta of 1.0 indicates that the asset tends to move in tandem with the benchmark, whereas a beta of 1.2 means it has tended to move about 20% more than the benchmark. For example, defensive utility funds frequently exhibit a beta below 1.0 relative to broad equity indexes. See also How to read a factsheet.

Environmental, social and governance (ESG)

Environmental, social, and governance (ESG) refers to a set of non-financial standards used to evaluate corporate behavior and sustainability risks in investment portfolios. ESG screens may exclude companies involved in controversial weapons, thermal coal, or tobacco, or overweight firms with stronger governance practices. For example, an ESG-screened world ETF filters out certain index components based on standardized sustainability ratings. See also MSCI World.

How do taxes affect your ETF portfolio?

This is general information, not tax or investment advice. For your own situation, consult a qualified tax adviser, a financial adviser licensed by the AFM (the Dutch financial markets authority) or the Belastingdienst.

Box 3

The part of Dutch income tax for savings and investments. Basically the tax is based on a set return on your wealth above the tax-free allowance, not on what you actually earn. The calculator leaves Box 3 out. Current rules and amounts are at the Belastingdienst (in Dutch).

Tax-free allowance

The part of your wealth on which you pay no Box 3 tax (in Dutch: heffingsvrij vermogen). The amount is set each year and is higher if you have a tax partner. The current amount is at the Belastingdienst.

Dividend tax

Tax that a company’s country withholds on dividends paid out, also called withholding tax. The Dutch version is called dividendbelasting. Whatever withholding tax a fund pays and cannot reclaim is dividend leakage.

Fiscal investment institution (FBI)

A Dutch fund with its own tax regime (fiscale beleggingsinstelling): in principle the fund pays no corporate income tax, but it must distribute its profit. Some Dutch index funds use this form. What it means for dividend leakage differs per fund.

What stock market terms do you need to know?

Stock (share)

A small piece of ownership in a company. Whoever buys a stock becomes a part-owner. Its value can rise and fall. See What is a stock?.

Shareholder

Someone who owns one or more stocks of a company, and so a small part of that company.

Exchange

The market where stocks and ETFs are bought and sold, through a broker.

Share price

The price of a stock or ETF at a given moment. It changes because buyers and sellers keep agreeing on new prices.

Dividend

A part of the profit that a company pays out to its shareholders. Not every company pays dividends, and a company can stop. What a fund loses to dividend leakage is something else.

Concentration risk

The risk that a large part of your money is in one company or one part of the market. If that disappoints, you feel it strongly. See The risk of a single company.

Diversification

Dividing your money among many companies, so a disappointment at one company only counts for a small part. Diversification reduces the risk of one company, not the risk of the market as a whole.

Dividend yield

Dividend yield is the annual dividend paid by a company or fund expressed as a percentage of its current share price. It reflects the cash distribution relative to the purchase price, but future dividend payments remain uncertain. For example, if an ETF share trades at €100 and distributes €3 in cash dividends over the year, its dividend yield is 3%. See also FTSE All-World High Dividend.

Ex-dividend date

The ex-dividend date is the day on which a stock or distributing ETF begins trading without the right to the upcoming dividend payment. Investors must own the shares before this date to receive the distribution, and the market price typically drops by approximately the dividend amount on this day. For example, buying an ETF on or after its ex-dividend date means the upcoming payout goes to the prior owner rather than the new buyer. See also FTSE All-World High Dividend.

Bid price

The bid price is the highest price that a potential buyer is willing to pay for a security on an exchange at a given moment. If an investor sells a share or ETF immediately using a market order, the transaction executes at the available bid price. For example, if a fund displays a bid of €100.00 and an ask of €100.04, sellers receive €100.00 per share. See also What does an ETF cost?.

Ask price

The ask price (or offer price) is the lowest price at which a seller is willing to sell a security on an exchange at a given moment. When an investor purchases an ETF share immediately using a market order, the trade executes at the prevailing ask price. For example, the gap between the ask of €100.04 and the bid of €100.00 forms the transaction spread. See also What does an ETF cost?.

Market order

A market order is an instruction to a broker to buy or sell a security promptly at the prevailing market price of that moment. While execution is swift, the executed transaction price is not fixed in advance and may fluctuate if market depth is thin. For example, during fast market movements, a market order can execute at a price slightly higher or lower than the last displayed quote. See also What is a stock?.

Stop-loss order

A stop-loss order is an order that triggers a market order to sell a security once its trading price drops to or below a specified stop price. It is designed to limit potential losses on a position, although the executed price may fall below the stop trigger during rapid market declines. For example, setting a stop-loss at €45 triggers a sale once the market hits that level, regardless of subsequent price moves. See also Single company risk.

Stop-limit order

A stop-limit order is an order that places a limit order once a predetermined stop price is reached, rather than selling at any available market price. This ensures the order only executes at the specified limit price or better, though it risks remaining unfilled if prices gap downward quickly. For example, an investor might set a stop price at €50 with a minimum limit price of €48. See also What is a stock?.

Primary market

The primary market is the financial venue where securities are created and sold for the very first time by issuers to raise capital. For ETFs, the primary market is where authorised participants exchange baskets of securities directly with the fund sponsor to create new ETF shares. For example, a company conducting an initial public offering operates in the primary market. See also What is a stock?.

Secondary market

The secondary market is the financial exchange where existing securities are bought and sold among investors rather than through the issuing company. Stock exchanges such as Euronext or the London Stock Exchange operate as secondary markets for retail ETF and equity trading. For example, when an investor buys ETF shares via an online broker, the trade occurs with another market participant on the secondary market. See also What is a stock?.

Derivative

A derivative is a financial contract whose value and payoff depend upon the performance of an underlying asset, index, or interest rate. Common derivatives include options, futures, and total return swaps. For example, a synthetic ETF uses derivative contracts called swaps to obtain the return of an index without holding all underlying shares. See also What is an ETF?.

Underlying asset

An underlying asset is the primary financial instrument, commodity, currency, or market index that gives value to a derivative or structured investment. Changes in the market price of the underlying asset directly determine the price movements of linked instruments. For example, the S&P 500 index serves as the underlying asset for an S&P 500 futures contract. See also MSCI World.

Futures contract

A futures contract is a standardized legal agreement to buy or sell a specified asset or index at a predetermined price on a set future date. Futures trade on dedicated exchanges and are settled daily based on mark-to-market valuations. For example, fund managers sometimes use index futures to deploy incoming cash allocations before buying physical shares. See also What is an ETF?.

Option contract

An option is a financial contract that gives the buyer the right, but not the obligation, to buy (call) or sell (put) an underlying security at an agreed exercise price within a specified time frame. The buyer pays a premium to the seller for this contractual privilege. For example, an equity option grants the holder the right to purchase 100 shares of a company at a fixed strike price prior to expiration. See also Single company risk.

Large-cap shares

Large-cap shares belong to established multinational companies with market capitalisations typically exceeding €10 billion, though exact thresholds depend on the index methodology. These industry leaders generally have stable revenues and liquid trading volumes on major stock exchanges. For example, broad equity indexes like the MSCI World allocate the majority of their weighting to large-cap shares. See also MSCI World.

Mid-cap shares

Mid-cap shares represent medium-sized publicly traded companies, typically situated between large-cap industry giants and smaller small-cap businesses. These companies often combine established business models with ongoing growth opportunities. For example, a global all-cap index complements large caps with mid-cap and small-cap stocks to capture total market coverage. See also MSCI World.

Commodity

A commodity is a standardized basic physical good or raw material, such as crude oil, gold, copper, or wheat, traded on international commodity exchanges. Commodities are fungible and typically serve as inputs for the production of manufactured goods and services. For example, some investors use broad commodity index products to gain exposure to raw materials alongside their equity holdings. See also Risk and diversification.

Cash flow

Cash flow is the net amount of cash and cash equivalents transferring into and out of a business over a specified accounting period. Operating cash flow reflects the money generated directly from core business operations before financing activities and capital expenditures. For example, a company with steady positive free cash flow has the financial flexibility to fund new investments or pay dividends. See also What is a stock?.

Net income

Net income is a company’s total profit after subtracting all operating expenses, cost of goods sold, depreciation, interest, and taxes from total revenue. Also known as the bottom line, it reflects the company’s financial earnings available to shareholders. For example, corporate annual reports disclose net income to show overall profitability compared to previous financial years. See also What is a stock?.

Earnings per share (EPS)

Earnings per share (EPS) is a financial metric calculated by dividing a company’s net profit by the total number of common shares outstanding. It provides a standardized measure of corporate profitability on a per-share basis. For example, a company with €100 million in net income and 50 million shares has an earnings per share of €2.00. See also What is a stock?.

Price-to-earnings ratio (P/E)

The price-to-earnings ratio (P/E ratio) is a valuation metric that compares a company’s current stock price with its earnings per share. It reflects how much investors are willing to pay today per euro of annual corporate earnings. For example, a stock trading at €40 with €2.00 in annual earnings per share has a P/E ratio of 20. See also What is a stock?.

Short selling

Short selling is a trading strategy where an investor borrows shares from a lender and sells them on the market, aiming to buy them back later at a lower price. If the asset’s price rises instead of falling, the investor faces losses that are theoretically unlimited because share prices have no ceiling. For example, short selling differs fundamentally from long-term ETF investing, which seeks capital growth over time. See also Single company risk.

Long position

A long position means purchasing and owning an investment asset with the expectation that its market price will appreciate over time. Holding a long position exposes the investor to potential gains as asset values increase, while the maximum loss is limited to the initial amount invested. For example, buying and holding shares of an ETF creates a conventional long position. See also What is a stock?.

Solvency

Solvency is an enterprise’s financial ability to meet its long-term debt obligations and sustain continuous business operations over time. Analysts evaluate solvency by assessing equity capital relative to total debt liabilities to gauge whether a company can withstand prolonged economic adversity. For example, fundamental analysts examine a corporation’s solvency ratio before investing in its shares or bonds. See also Single company risk.