Investment Management Association

How funds spread investment risk

By investing in a fund you can spread risk. This is also called diversification. It's about not putting all your eggs in one basket.

Broadly, funds can achieve diversification in four ways. They can:

• Invest in different asset types (eg. a mix of shares, bonds and cash as opposed to just shares)
• Spread investments within each asset class (eg. holding the shares of more than one company)
• Invest across different business sectors (eg. telecommunications, mining, pharmaceuticals)
• Invest internationally (eg. in Japan, North America, Brazil as well as the UK)

The extent to which a fund diversifies may impact the potential risk level of the investment and potential return.

Each fund also has an investment objective (eg. to generate a regular income or to achieve capital growth). This can also determine how far a fund diversifies between asset classes and geographically.

Find out more about the different funds you can choose from

Find out more about how your money is managed in funds and different investment strategies