Investment Types

Investment Types

There are many different funds to choose from depending on your level of risk and we can help you narrow your search to a fund or funds suitable for your requirements.

Unit Trusts, OEICs/ICVCs are pooled funds of investors’ money which are used to buy a range of shares, gilts, bonds or cash deposits. They are open ended funds meaning that the size of each fund can vary according to supply and demand. They provide a mechanism of investing in a broad selection of shares which reduces the risk of investing in individual shares.

When you invest in a Unit Trust you buy a unit which is a portion of the total fund. Each fund has its own investment objective controlled by a fund manager. The fund manager will invest the money on behalf of the unit holders (or shareholders). The value of your investment will vary according to the total value of the fund which is determined by the investments the fund manager makes with the fund’s money. To cover the costs of running a fund you will usually have to pay an annual fee for ongoing costs such as administration. You can invest into a Unit Trust or OEIC/ICVC through an ISA (Individual Savings Account). There are no additional charges for having an ISA and you have the advantage of the investment being tax-free.

Equity is another word for share. The capital of a company is divided into shares. Each share forms a unit of ownership of a company and is offered for sale so as to raise capital for the company.

Shares can be broadly divided into two categories – ordinary shares and preference shares.

Ordinary shares give their holders the right to share the earnings/profits in the company as well as a vote in the AGMs of the company. Such a shareholder has a share of the profits but also must bear the losses incurred by the company.

Preference shares, however, earn their holders dividends only. These dividends must be paid out before any dividends are paid to ordinary shareholders. Preference shares are fixed, offering no voting rights.

Ordinary shareholders are regarded as the real owners of the company. When the shares are offered for sale directly by the company for the first time, they are offered in the primary market, whereas the trading of shares takes place in the secondary market.

When we talk about equities, we are generally talking about ordinary shares.

A corporate bond is a loan to a company. It is essentially a way for a company to raise money by offering investors a fixed level of interest on the amount lent (invested).

The level of interest payable to the investor will largely be governed by the financial strength of the company and therefore the likelihood of full capital repayment at the end of the term of the loan.

The lower the risk of capital loss, the lower the interest rate payable and vice versa.

For example, a large blue-chip company such as British Gas is likely to offer a lower rate of interest than a smaller company quoted on the AIM stock market.

Where the risk of default is higher, these are known as high yield corporate bonds.

Corporate bond funds invest in a basket of corporate bonds to mitigate risk. They are generally considered to be lower risk than equites (but higher risk than deposit accounts) and are ideal for income seekers willing to accept a degree of risk to their capital. The underlying capital value can fall as well as rise, but these movements tend to be less than with equities.

Similar to a Corporate bond, a gilt is also a loan or an IOU but to a government as oppose to a company. Again, your level of return would reflect the ability of a government to meet it’s obligations. As an example, a UK government may pay less interest to you than that of an emerging country which could pay more but would give you a higher element of risk.

A tracker fund aims to mimic the performance of an index such as the FTSE 100 All-share and is considered to be a passively managed investment. One of the primary advantages associated with investing in a tracker fund is that the charges are typically lower when compared with actively managed funds. This is due to the fact that tracker funds are automated and are not run by a fund manager and will therefore not carry out the same level of market analysis.

When talking about Multi-Asset funds, one of the most important aspects is their unique diversity. The majority of funds spread risk across multiple asset classes and securities but predominantly have a specific theme such as UK Equity, US Smaller companies, Corporate Bonds and so on. This is the general idea of a Unit Trust, a pooled investment giving you the unique opportunity to spread your risk. However, with a multi-asset fund, this could, for example be increased to around 1,500 stocks in asset classes spread over 50 countries. With exposure to UK Equities, cash, emerging markets debt, European equities, high-yield bonds, investment grade debt and real estate investment trusts, this truly is diversification.

Current ISA rules

Current ISA rules

Do you know the current rules governing ISAs?

ISA rules

Direct or Platform

Direct or platform?

The difference between investing direct or through a fund supermarket (platform)

Direct or platform?

Junior ISAs Explained

Junior ISAs explained

What is a junior ISA and who can invest in them

Junior ISAs

Which fund is right for me?

Which fund is right for me?

Unsure what fund to invest in? We may be able to help you decide

Fund choice

Income or Growth?

Income or growth?

An explanation on the difference between taking income from your investment or letting it accumulate

Inc. or acc.?