Terms & Definitions - D
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Debenture: A bond unsecured by any pledge of property. It is supported by the general credit of the issuing corporation.
Debt: An obligation to repay a sum of principal, plus interest. In corporate terms, debt often refers to bonds or similar securities.
Deductible: The amount of covered expenses that an insured must pay out-of-pocket before benefits become payable by the insurer. Plans either have a calendar year deductible (most common) or a contract year deductible.
Deemed disposition: Assets, including RRIFs, can pass tax free to a spouse upon death. However, when the surviving spouse dies, Revenue Canada's "deemed disposition" rules consider all the assets as, in effect, having been sold, and taxes must be paid in that year on RRSPs and RRIFs, and on capital gains in stocks, a business, or a cottage. However, new rules introduced in 1999 now allow RRSP and RRIF assets to be passed on after death to dependent children or grandchildren, and to be taxed as assets in their hands.
Deferral: A form of tax sheltering that results from an investment that offers deductions during the investor's high-income years, and/or postpones capital gains or other income until after retirement or during another period when the income level is expected to change.
Deferred annuities: You can buy an annuity to provide income in the future, rather than at the date of purchase. Such deferred annuities cannot begin any later than the month of January of the year in which you turn 70, but can be put in place as much as 10 years in advance. This makes sense only at times when interest rates are high and you want to lock them in ahead of time.
Deferred Profit Sharing Plans (DPSPs): Employer-sponsored pension plans, registered by Revenue Canada, where the employer shares the profits of a business with all employees or a designated group.
Defined Benefit pension plans: The type of pension plans most employees have, which provide pensions generally calculated on the basis of earnings and years of service. Under such plans, you know exactly what your pension payments will be.
Defined contribution pension plan: A registered pension plan that does not promise an employee a specified benefit upon retirement. Benefits depend on the performance of investments made with contributions to the plan.
Denomination: The principal amount, or value at maturity, or a debt obligation. Also known as the par value or face value.
Depreciation: Charges made against earnings to write off the cost of a fixed asset over its estimated useful life. Depreciation does not represent a cash outlay. It is a bookkeeping entry representing the decline in value of an asset that is wearing out.
Discount: The amount by which a bond sells on the secondary market at less than its par value or face value.
Discretionary investment management: A service provided by most financial institutions that takes the management of your investment portfolio off your shoulders and onto those of a professional money manager. Generally speaking, this service makes sense for those with $200,000 or more in their portfolios.
Distributions: Payments to investors by a mutual fund from income or from profit realized from sales of securities.
Diversification: Spreading risk by investing in a broad range of securities. A diversified portfolio would include both short- and long-term interest-bearing securities, as well as common or preferred stocks. A diversified portfolio usually would include investments in different industry sectors as well as countries.
Dividend: Payment, as a share of profit, made to holders of common or preferred shares of corporations, or distributions of dividend mutual funds. These are eligible for the dividend tax credit (if held outside a registered plan such as a RRIF) and, now that the $100,000 lifetime capital gains exemption has been abolished, they are the most tax effective way to receive investment income in Canada.
Dividend fund: A mutual fund that invests in common shares of senior Canadian corporations with a history of regular dividend payments at above average rates, as well as preferred shares.
Dividend tax credit: An income tax credit available to investors who earn dividend income through investments in the shares of Canadian Corporations.
Dollar Cost averaging: Buying securities (e.g., a mutual fund) with investments spread out over a period of time, usually monthly, so as to ensure the lowest average purchase price during that period. Also, the technique of using market corrections as bargain hunting opportunities, adding to a portfolio at reduced prices. This generally lowers the average cost of securities in a portfolio over time.
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