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Perpetual knowledge bank series: Basis Point

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Basis points, sometimes called bps or ‘bips’, are a unit of measurement used in finance, usually to describe small but significant percentage changes.

The term is commonly employed to describe changes in interest rates but can also be used when referring to changes in equity indices, fixed-income security yields or the cost of mutual funds. A basis point is a hundredth of a percentage point or 0.01%. For example, if the cash rate moves from 0.35% to 0.85%, then it has moved by 0.5% or 50 basis points.

The main reasons investors and financial services professionals use basis points or bips to communicate is to avoid ambiguity when a rate difference is less than one percent, but the amount still has material importance. For example, when discussing an interest rate that has increased from 10% to 11%, some may say there has been a 1% increase. However, it would also be correct to say that the base interest rate of 10% has increased by a further 10%. Using basis points eliminates this confusion by stating that there is an increase in the interest rate of 100 basis points.

This analysis has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.

The information is believed to be accurate at the time of compilation and is provided in good faith. This document may contain information contributed by third parties. PIML and PSL do not warrant the accuracy or completeness of any information contributed by a third party. Any views expressed in this document are opinions of the author at the time of writing and do not constitute a recommendation to act. 

The product disclosure statement(PDS) for the Perpetual Diversified Income Fund issued by PIML, should be considered before deciding whether to acquire or hold units in the fund. The PDS and Target Market Determination can be obtained by calling 1800 022 033 or visiting our website http://www.perpetual.com.au

No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Past performance is not indicative of future performance.