The abundance of choice may appear overwhelming, especially if you’re trusting someone you’ve never encountered with your hard earned savings. But by breaking the different types of funds down, it becomes easier. Funds can be generally categorised as the following.
The investment companies, on behalf of a number of investors, manage these funds. Managed funds invest in a combination of assets from different regions. There are limits on how much of the fund can be made up with shares.
There are three types of managed fund – cautious, balanced, and active. Cautious managed funds will invest about half your money in shares and the rest in fixed interest investments to minimise risk. Active managed portfolios, in comparison, can have up to 100% invested in equities, providing they have at least 10% invested in non-UK stocks and shares.
Tracker Funds are designed to match the performance, good or bad, of a particular index such as the FTSE 100, or FTSE Europe. Because investments are based on the index and not individual choices made by a fund manager, trackers are cheaper to run than managed funds, therefore charges are less.
Income or Growth
Most funds, unless they are specifically designed for income or growth, offer the option of paying out income to you, or reinvesting it back into the fund for growth.
Collective Funds
It is usual to invest in more than one fund to achieve a good spread of different investments. This helps to reduce risk because you are invested in more than one area. So you might choose a UK Corporate Bond Fund a UK Equity Fund, and a Global Equity Fund to counteract fluctuations in one area. Taking the next step It is important to also look at each fund in isolation and the breakdown of investments, before making comparisons. To simplify the process for investors there are a number of other facilities available.