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Choosing An Investment Company

 Choosing An Investment Company

Click here to go forward to the Research Before You Invest section
Click here to go back to the Objectives And Policies Section
Click here to return to Investment Companies – Part One
Click here to return to Investment Companies – Part Two

What are the differences between investment companies which aim for growth, for growth & income or just income?

 Growth

Investment companies dedicated to growth of investors’ capital set out to generate returns through an increase in the capital value of their assets. Such investment companies may hold assets that do not produce an income, such as companies that are not paying dividends or paying only small dividends because they are reinvesting all of their profits to build or expand businesses and properties.

Growth funds are often considered to be riskier than average because more of the current value is dependent on expectations of future success – ‘hope’ value, in other words. Even the best laid plans do not always turn out as anticipated.

 Income

Income funds target assets that pay higher than average dividends or offer a better yield (the income from an asset divided by its value). The drawback is that there can be a lower chance of generating capital growth. It is worth bearing in mind that if the income stream fails (for example, if a company stops paying a dividend), and there is little or no capital growth to fall back on, the capital value may go down.

Income producing investments are often valued relative to the returns that could be achieved by investing in very low risk or no-risk investments, such as government bonds and bank deposits. If the return achievable from these safer investments rises, the return on an income fund may be relatively less attractive and its value may fall. It is worth checking if returns on an income fund are sensitive to moves in interest rates and/or inflation.

In good times, investment companies can set some money aside in revenue reserves in order to maintain or grow dividends in bad times. This can make dividends from investment companies more reliable than those from equivalent open-ended funds.

 Growth & Income.

As the name suggests, growth and income funds invest in assets which generate an income (like a company paying dividends or a property that is rented out) but where there is also a chance of capital gain. These kind of investment assets tend to be, but are not always, less risky than average because even if capital values are falling, there is a chance of compensation from income. In recent times, more funds have adopted policies that pay some or all of their dividends from capital gains. This blurs the line between what is a growth fund and what is an income fund.

 Website tools

The data feeds section of the website is designed to help you choose between funds. They are arranged into sectors so you can compare like with like.

You can rank the funds by a number of criteria such as performance, fees, gearing (how much they have borrowed) and yield.

Once you have selected a fund, you can click on the name of it to see more information on it. You can also find these pages by searching for the company name or the three/four letter company code we use throughout the site. You can read about how these pages work here.

Where we have published our own research on some of these funds, we’ll flag this up. This goes into how the fund works in much more detail.

Click here to go forward to the Research Before You Invest section
Click here to go back to the Objectives And Policies Section
Click here to return to Investment Companies – Part One
Click here to return to Investment Companies – Part Two

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