Confused by the different classes of investment?

We will help you make sense of them!

You can contribute up to £10,860 into tax efficient Individual Savings Accounts (ISA) each year. There is a wide range of different styles of ISA account types and you are allowed to invest in a mix of cash or stocks and shares with funds designed to provide income or growth. You can transfer your ISA holdings between different companies to attract a potentially better return or to suit changes in your attitude to risk and reward. ISA's are very popular and efficient, they're simple to understand but you must obey specific rules or you could lose your entitlement.

Bonds can be issued by either a company or a government and is a way of raising capital. Investors buying a bond are effectively loaning money to the issuer. A bond will have a fixed term, at the end of which the investor will receive the original issue price. Interest is normally paid during the lifetime of the bond.

Gilts, also referred to as government securities, are bonds issued by the UK Government. They have the same properties as other bonds, in that they pay a set rate of interest at regular intervals for a set period of time and will be bought back at their issue price on a set date. They are called gilts because they are believed to be very secure investments.

Corporate bonds are issued by companies as an alternative to issuing an increased number of equities. Similar to government bonds, corporate bonds will pay a regular rate of interest and will generally be redeemed at their issue price on a set date.

Fixed interest securities is an alternative term for a bond or similar instrument which obligates the borrower to pay a fixed amount of interest during the period of issue and to repay the issue price when the instrument expires. Many different types of institution issue fixed interest securities, such as governments, publicly held companies and banks.

Collective investment schemes is a generic term for investment funds with more than one investor, such as unit trusts, offshore funds and investment trusts, which are managed by professional managers.

Unit trusts are collective investment schemes, in which investors’ monies are pooled together and invested according to set investment guidelines. Investors purchase units which represent their interest in the underlying assets of the fund. The changing price of the units held reflects the rise and fall in value of the underlying assets of the fund.

Investment trusts are similar to unit trusts as a means of collective investment, but with a different structure governed by different regulations. They are public companies, (i.e. listed on the London Stock Exchange), with fixed share capital, whose value fluctuates with the demand for their shares on the stockmarket. The price of an investment trust does not necessarily equal the value of its underlying assets.

OEIC’s, (Open-Ended Investment Companies), are pooled investment funds of variable size, set up as a company like an investment trust. It owns investment assets, for example stocks and shares, gilts, bonds and certain other financial instruments. The size of an OEIC varies, reflecting the market value of its underlying investments and it will also fluctuate as investors buy and sell shares as the OEIC has more or less property to invest - it is in this sense that it is open-ended. OEIC’s are very similar to unit trusts however, OEIC's investors own shares in the company rather than units as in a unit trust. OEIC’s also offer a number of advantages such as single pricing and transparency.

Equities, (also known as shares or securities), give investors part ownership of the company that issues it - in return investors can attend Annual General Meetings where they can approve or disapprove the actions of the current management. Shares are high risk investments as nothing is guaranteed - if the company invested in goes bankrupt investors will probably get little, if any, of their capital back. However, because they are risky, shares have the potential to produce better returns than other forms of investment over the longer term. As return can be generated through dividends or a rise in the price of the share they offer some protection against inflation.

Investors should be aware that the value of units may fall as well as rise and is not guaranteed, and that past performance is not a guide to future performance. Investors may not get back the full amount invested.

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