Are you investing for growth, income or for both?

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 could choose 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 may wish to choose a fund that invests in bonds, which provide a rate of interest higher than is available with cash. Alternatively, there are equity funds which invest in shares of companies which aim to generate income rather than capital growth and 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, you may choose a fund which only invests in shares.

All funds which invest in shares are subject to the movements 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.

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.

In the case of share and bond funds you will want to think about 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 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 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.

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

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 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 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. A fund that invests indirectly will purchase more liquid assets such as property derivatives, REITS or shares in a property company.

Drip feeding money
You don’t have to have a lump sum in order to invest. Regular savings plans allow you to contribute relatively small amounts of money on a monthly basis and to build up a capital sum. By investing regularly and drip feeding money into a fund regularly you will avoid investing all of your money at the peak of the market, when prices are high. However, you also miss the opportunity to invest at the bottom of the market, when prices are cheaper.