Investing for growth, income
or for both

What are the options available to you?

There are a wide range of investment funds available to choose from. You should consider whether you are primarily investing for growth, income or for both.

If you want some income, but no risk to your capital, you may wish to consider choosing a money market or cash fund, which means a professional investor will be working to get the best available interest rates.

If however, you are willing to take some risk with your capital, you could choose a fund that invests in bonds, which aims to provide a rate of interest that is higher than available with cash.  Alternatively, there are equity funds which invest in shares of companies seeking to generate income rather than capital growth and that aim to pay out higher than average dividends.  Other funds which offer a mixture of both shares and bonds are known as managed funds.

Alternatively, if your objective is long term growth, if appropriate, you may choose a fund which only invests in shares.

Active or tracker?
All funds which invest in shares are subject to the ups and downs of the stock market. A “passive” fund or “index tracker” is designed to follow the value of a particular index (e.g. the FTSE 100). In general, an “active” fund manager’s aim is to reduce risk and generate better returns than the index for long term investors, through in-depth research and a long term outlook on companies’ development.

Which investment style?
You might also want to think about whether the fund is “aggressive.” This usually means that it invests in fewer companies and is, therefore, potentially more risky than a fund adopting a more cautious approach, which is typically likely to have a wider range of underlying investments. Some funds invest mainly in small companies, which also generally implies that they are higher risk than funds investing in larger, usually more established companies.

Fund focus
In the case of share and bond funds it is important to consider the focus of the fund: some funds specialise in, for example, a geographical area (e.g. North America) or in a particular sector (e.g. technology).

You might want to start with a broadly based fund and then, if you are able to invest more over time, you could choose to add more specialised funds to your overall portfolio.

Mixed funds
These are funds which diversify between different types of investment, meaning they invest in a mixture of cash, bonds, shares, pooled funds, property and derivatives.

Protected funds
There are other types of fund which are “protected” or “guaranteed” to limit losses if the market goes down, or to give you assurance that you will get back at least a certain amount after a specified length of time. It is unlikely that such funds will grow as fast as unprotected funds when the stock market is performing well, as you have to pay for the cost of protection.

Socially responsible funds
These are funds which invest only in companies which meet certain “ethical” criteria, for example avoiding tobacco companies or those which test on animals.

Funds of funds
Funds of funds and manager of managers are designed to give investors a chance to invest in a range of funds. A fund of funds is where the fund in which you are invested invests in several other funds. A manager of managers chooses several managers to manage different parts of a pool of money.

Money market funds
Money market funds are designed to offer higher returns than a building society account but still have the same level of security. They invest in bank deposits and are generally called “cash funds.”  Some invest in short term money market securities.

Property Funds
Property funds invest either directly or indirectly in property or property-related assets. A fund that invests directly will buy physical property such as a shopping centre in order to generate rental income. This type of fund will purchase more liquid asset such as property derivatives, REITS or shares in a property company.