There many different types of funds categorised into sectors. The following are some of the most popular:
Funds of this nature are aiming to take more risk in pursuit of above average returns. These types of funds are often associated with a large bias towards investing in shares.
Income funds primary goal is to provide a good source of income via dividends. To achieve this goal, income funds will invest assets where regular dividends can occur – this includes companies, as well as bonds and properties.
Funds that try to replicate the performance of an index such as the FTSE 100 rather than ‘cherry-pick’ the perceived best selection of shares.
Balanced funds should be considered a combination of the above types of funds. Commonly these funds have a mixture of shares and bonds to provide the growth as well as income aspect respectively.
These are funds that invest in a variety of funds that are controlled by different fund managers – providing further diversification and aiming to further lower associated risks.
The funds described above will vary in their interest to investors, depending on their preferred investment style. The underlying principle behind a fund of any nature, is the number of investments it makes in an attempt to lower risk through diversification in comparison to individual investments in an asset class.