ISAs

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12. Choosing an ISA fund

For many people, the easiest way to invest in Stocks and Shares is through a fund - either a unit trust or an investment trust. Funds give you the benefit of diversification, which means your risk is spread, and the investment decisions are made by professional fund managers.

Before choosing a fund, you need to be clear about what you want from it, because every fund is managed with a specific investment objective in mind.

• Income funds
  These funds aim to produce maximum income for their investors. If they are equity funds, they are likely to invest in well-established companies with a known history of paying dividends. If they are bond funds, they are likely to invest in the corporate bonds of large companies with good credit ratings, although some 'high yield' funds will invest in riskier corporate bonds paying higher rates.
• Capital growth
  These funds aim to produce a return for their investors by increasing the capital value of the fund. They invest in companies which they expect to grow. As the share prices of those investments increase, so does the capital value of the fund, but income from the fund may be minimal or zero.
• Balanced funds
  These funds aim for a mix of income and capital growth.

Within each of these categories, there is a plethora of subdivisions. You can choose funds specialising in sectors (e.g. technology, biotech), you can choose funds specialising in geographical regions (e.g. UK, Asia, North America, Europe), you can choose funds specialising in special situations (cyclical stocks).

The name of the fund will tell you what it does, and for more information you can ask the fund provider for a detailed explanation of its asset allocation policy.

1. What is an ISA? 2. Who can take out an ISA? 3. ISA investments: the 'Components' 4. The different kinds of ISA: Maxi, Mini and Tessa-only 5. How many ISAs can you have? 6. How much can you put in an ISA? 7. Maxi or Mini? 8. Tax rules on ISAs 9. Practical significance of ISA tax rules 10. Cash ISAs 11. Stocks & Shares ISAs 12. Choosing an ISA fund 13. Buying an ISA 14. Charges and CAT standards 15. Where to find an IFA 16. Switching ISA investments 17. Transferring shares into an ISA 18. Withdrawing funds from an ISA 19. Conclusion

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