First principles of investing

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10. The choice of collective equity funds

If you do not have enough capital for direct investment, there may be various ways to invest in a good mixed equity fund. The taxation and charges can vary considerably, so you may wish to check which is right for your circumstances.

• Unit trust and open ended investment companies (OEICs):
  Here your contributions buy units in a fund. The value of these units fluctuates in line with the market value of the underlying assets.
• Unit linked insurance company bonds:
  Like unit trusts but a different tax structure. Low cost switching and special tax treatment for higher rate payers are features of these bonds.
• Investment trust:
  A UK company, listed on the stock exchange, which invests in the shares of other companies in the UK and overseas. The share price is affected by supply and demand, so there may be an added layer of potential volatility compared with unit trusts.
• With profits bonds:
  These may be considered lower risk than unit linked/unit trust funds. Part of the return or 'bonus', once allocated, is guaranteed not to be taken away (like interest on a deposit account). The rest of the return is allocated on encashment and is discretionary.
• Guaranteed equity funds:
  These claim to offer the capital growth associated with equities but may reduce your exposure to stock market volatility. They also carry a cost and limit the gains.

1. Five steps to establish your investment goals 2. Your attitude to risk and reward 3. The major asset classes 4. Which type of manager? 5. Your investment assessment kit 6. Is past performance a guide to the future? 7. Easy access deposits for emergencies 8. Fixed income products 9. A rising income 10. The choice of collective equity funds 11. Pensions and ISAs 12. Tax efficient but may be very risky 13. Selecting your shares 14. Your stockbroker 15. Buying your shares 16. Ethical Investment 17. When to sell 18. How to keep your portfolio on track 19. Do you need an adviser? 20. Conclusion

• First Steps in Shares
• How to Read the Financial Pages