The accepted classification of unit trust and OEIC funds is performed by the Investment Management Association (IMA), a trade body which represents 99% of fund providers in the UK.
The IMA divides funds into three types:
It then sub-divides these main types into narrower classifications, which are listed in the tables below. In the tables, we have assigned a risk grading to each which is somewhat arbitrary but meant to convey the point that different types of fund come with different levels of risk and potential reward.
RISK KEY
Grade 1 = Cautious
Suitable for those who want better returns than the banks or building societies, who have a need for income and short-term objectives
Grade 2 = Balanced
Suitable for those who want to beat savings account returns over the medium term and are happy to moderate risk by investing across a range of asset classes (e.g. equities and fixed interest securities)
Grade 3 = Market Risk
For investors who are prepared to endure normal short-term market volatility in exchange for the prospect of long-term gains, and for whom income is a secondary requirement
Grade 4 = Adventurous
For investors with spare money who are prepared to endure significant volatility and who are prepared to absorb losses
Grade 5 = Speculative
For investors looking for extraordinary gains and who can afford to lose a significant portion if not all their capital if things go wrong.
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