Funds allow investors to pool their money together, to take advantage of buying in bulk, spreading the money across lots of different investments and gaining access to a professional investment expert to manage your money. All funds have different investment objectives and levels of risk. 

There are lots of different types of funds and there are hundreds of options to choose from. The funds vary in the way they are managed, the assets they invest in and the level of risk they take relative to the amount of reward they aim to achieve. Some funds offer the opportunity to grow your money, others work to provide you with an income and some do both.

In broad terms, funds can be categorised into several groups:

• Deposit – these invest in cash. Risk is low and returns are also likely to be low.
• Fixed interest – these invest in corporate bonds and gilts. Risk is usually low to medium with the primary goal of providing income.
• Managed funds – these invest in a range of equities and other assets such as fixed interest. They are usually medium risk, but this will vary from fund to fund. They aim to provide income, growth or both.
• Equity – equity funds are medium to high risk and normally aim to provide long-term capital growth rather than income.
• Tracker – investments are chosen to move in line with (track) a particular stock market index, such as the Financial Times Stock Exchange (FTSE) Index of the 100 largest companies listed. As the fund manager is not choosing what to invest in but merely tracking a particular index they are known as passive funds. Risk will be medium to high.
• Property – these invest primarily in direct commercial property and property-related shares and are normally medium risk.
• Specialist – generally high risk, these funds invest in a particular sector or region, such as Japan - or particular shares, such as small companies.
• Ethical – these funds can be general or specialist but will only invest in assets which meet certain ethical criteria (e.g. defence and tobacco companies may be excluded and companies with good employment practices may be actively selected). Risk will depend on the type of asset they invest in.

Within each fund category there are a range of different funds, managed by different fund managers. They will all have different goals and levels of risk and will therefore perform differently. It’s important to get advice to find the right fund for you.