Facts about funds
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- Choices: funds to suit your needs
Choices: different funds to suit your needs
There are around 2,400 UK authorised funds for investors to choose from. There are also many offshore funds registered for sale in the UK.
To make it easier to navigate your way around so many funds, IMA splits them into broad categories by investment objective:
These categories are then broken down further by, for example, asset types, geography or industry (eg. UK Growth or Global Income), giving about 30 individual IMA fund sectors.
Find out more about the IMA Sectors
Within each category, you can also search for tracker funds, ethical funds and funds that can be held in ISAs. You can use IMA's Fund Search to look for funds using this criteria.
Income
If you want to earn a regular income from your fund and are willing to take some risk with your money, you have a choice of fund types.
You could invest in a bond fund, which typically provides a higher rate of interest than you’d get from a cash deposit account.
Alternatively, you could invest in an equity income fund. These funds invest money in company shares and income is paid out in the form of dividends, usually twice a year.
Mixed asset funds - typically a mixture of bonds and equity - can also be used to give you a regular income.
Read our guide 'Using funds to get an income' for further information
Capital growth
Funds aiming for capital growth give you the opportunity to grow your money over the long term. Any income earned may either be paid to you or you can choose to reinvest it back into the fund each year to buy more units, and you can choose for any income due to be accumulated in the value of your units or shares over time. Reinvesting or accumulating the income will compound returns over time as the money reinvested will, in turn, earn more income.
Both equity funds and bond funds can be used to generate capital growth, although in periods when interest rate trends are upwards, bonds may have difficulty generating such growth as bond prices tend to fall when market interest rates rise. There are many different types of equity fund with some focusing on particular geographic markets (such as North America or Europe) and others on certain industry sectors across the whole world (such as telecoms and technology).
Managed or mixed asset funds can also be used for capital growth. These funds give the manager more freedom to vary the blend of equities and bonds.
Capital protection
These funds are designed to limit losses if the market goes down, or to give you peace of mind that you will get back at least a certain amount after a specified length of time. Money market funds seek to protect your investment by maintaining a stable unit or share value, although this is not guaranteed.
You need to bear in mind, though, that any form of 'protection' comes at a cost (eg. lower returns when markets are positive).
Specialist/Unclassified
These are funds which don't meet the general objectives of 'income', 'capital growth' or 'capital protection'. In addition, a number of funds have a particular focus or follow a particular strategy, such as property funds and absolute return funds.