Already a customer? or

Seeking Income or Growth?

As an investor, you are no doubt looking for a suitable fund to give you a return on your investment. But what kind of return will help you reach your financial objectives?

Are you looking for an investment that will generate an income, perhaps to supplement your pension? May be in several years’ time you want to help your grandchildren with their university tuition fees so capital growth is currently more important for you. Alternatively, you may prefer to select a fund that offers a mixture of the two.

Investing for Income

Getting an income from your investment is often an important requirement for people who are retired or approaching retirement, those who need to supplement their salary, or those with a relatively short investment timeframe.

The most popular forms of income investment are bonds (which are also known as ‘fixed income’ investments) and cash. Both of which pay a regular, consistent rate of interest either annually, twice a year or four times a year. You can also obtain an income from shares in the form of dividends and many equity funds are set up solely with the aim of generating a stable income.

Dividend payments are subject to Income Tax, however, if you hold your investment in an ISA all income you receive will be tax free.

Investing for Growth

Investors looking to see their assets grow over time should think about funds focussed on investing in equities, which have the potential to return growth on a long term investment. You should always firstly consider your appetite for risk, as equities can be more volatile than other forms of investment meaning that there is an increased risk that you may make a loss on your investment. The upside is that there is also the potential that your investment will see greater growth.

Growth investments usually suit people who are willing to keep their money tied up for five years or more and, when the time comes to sell your investment, you may find that you have made what is known as a capital gain.

A capital gain is basically the difference between the price at which you buy the fund and the price at which you sell. Don’t forget if you hold your investments within an ISA, any gain you make will be free from Capital Gains Tax (CGT).

Most growth funds do not pay a dividend and, whilst they can be more volatile in the short-term than income producing funds, they can also provide investors with far greater returns over the long-term.

Income, Growth or Both?

How can you decide between growth and income investments? It all depends on your investment time frame, and what you need the investment to provide for you. If you need a regular stream of income, you should focus your portfolio on funds that will help you achieve this. If you have a longer investment time period, or you do not need an immediate income, you should think about a larger allocation to growth-focused funds.

Whatever your preference, if you hold a variety of investments, both growth and income, you should be better prepared for whatever economic ups and downs might be ahead of you. As your financial situation changes over time, you should be prepared to make the necessary adjustments to your portfolio, and switch from growth funds to income ones as your investment needs change.

Whichever return you decide is best for you, you will find a selection of income generating funds and funds which aim to deliver capital growth to investors featured within the researched funds on this website.