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.
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