Growth vs income funds
When you start investing, you’ll be asked to decide what type of funds you’d like to invest in. Find out the difference between growth and income funds here. Investment values can rise and fall.
Key points
- Growth funds aim to increase the value of your investment by focusing on companies expected to grow.
- Income funds prioritise generating regular payments, often through dividends from established companies.
- Choosing between growth and income depends on your financial goals, time frame, and attitude to risk.
- Some funds combine both approaches, offering potential growth alongside income for a balanced strategy.
So, you want to start investing but you’re not sure which fund to choose? There are some important things to think about when you’re deciding, like your financial goals and how you feel about risk. But there’s also another choice to make between growth and income funds. Keep reading to find out more about these different types of funds to help you work out which one could be right for you.
Remember, as with all investments, they could go down as well as up and you may get back less than you put in.
What are funds?
Funds allow you to invest in more than one asset at once. An asset is anything with monetary value - things like company shares, property, or government bonds, to name just a few.
Generally speaking, investing in funds is a way of trying to achieve diversification with your investments. Here’s more about the basics of funds. Find out more about the basics of funds here.
Growth funds
Growth funds, also known as accumulation funds, aim to increase the value of your investments over time. The idea is that you’ll be able to sell your investments for a profit in the future – but you’ll need time to weather the ups and downs of the market.
Growth funds will often focus on buying shares in companies that have potential for growth, like technology companies. In this case, you’re essentially betting that a company will show a good return over time.
Unsurprisingly, growth funds perform best when the economy is growing. The idea is that funds grow at a faster rate than the stock market – but, of course, this isn’t guaranteed.
Are growth funds for me?
You’re most likely to benefit from growth funds if you’re happy to wait until you cash-in on your investment. For pensions, it may be you’re younger and have a long time for your investments to grow before you retire. Or if you want to put some money away in a long-term investment, growth funds could be the answer.
Income funds
Income funds aim to give you regular payments, which come from share dividends and interest. That's why income funds are mainly invested in shares of stable, established companies and in bonds, which are fixed‑term, loan‑based products that pay out interest.
However, the level of income you receive can fluctuate, because dividends and interest payments aren’t guaranteed and can change over time. When it comes to many pension funds, the aim is long-term saving for a greater retirement pot, so dividends are usually 'accumulated' back into your pension rather than paid out as income.
Are income funds for me?
If you want your investments to pay out to you regularly, it could be a good idea to select an income fund.
In this video, Harriet Ballard, Portfolio Manager within the Multi‑Asset Funds team at Aviva Investors, explains the difference between growth and income funds, helping you understand how each approach aligns with different investment styles.
Transcript
Chapter 1: Growth vs income funds: Which fits your investment style?
This video is for educational purposes only. This should not be viewed as advice or a recommendation to invest.
When it comes to investing—whether in your pension or an ISA—there’s no such thing as a one-size-fits-all.
The value of your investment may go down as well as up and you could get back less than invested.
Different strategies suit different people, and even for the same person, what works today might not be the right fit tomorrow. Our goals change, our timelines shift, and so should our approach. Let’s look at how that might play out across different stages of your life. As we know, investments can go down as well as up, so you may get back less than you’ve paid in, which is important to consider.
In your early career, when you’re in your 20s or 30s, you’ve got time on your side. The markets might go up and down, but with years ahead of you, you can usually ride out the bumps. And that’s why a ready-made fund focused on growth—such as our Multi-Asset plus with a high proportion of equities—could make sense. It gives your money the chance to grow steadily over the long term.
With mid-life goals, maybe you’re saving for a new home in a few years or planning ahead for your child’s education. Here, it’s all about balance of bonds and shares. You want enough growth to hit your target, but not so much risk that short-term volatility throws you off track. As you get closer to retirement, priorities shift. Preserving what you’ve built often becomes more important than chasing big returns. A more defensive mix with a greater focus on bonds and perhaps some alternatives can help cushion your portfolio.
Finally, ask yourself – are you looking for growth or income? Once you move into retirement, income funds can be a great option. Unlike growth funds, which aim to build your money over time, income funds are designed to pay you a regular amount, a bit like a paycheck from your investments. These payments come from share dividends and interest. That’s why income funds are generally made up of shares in stable established companies and hold bonds which pay out a fixed interest payment over time. So if you aim for investments to give you steady payout, the income fund could be a really good fit.
Here’s the key: your strategy should evolve as your life does, what works at 30 won’t work at 60. Investing isn’t static, it’s a journey. The important thing is to keep checking in, making sure your money is still working in the way you need it to, wherever you are on that path.
This video is for educational purposes only. This should not be viewed as advice or a recommendation to invest. Investing offers the potential for better returns than cash savings over the long term (5+ years). But there are risks, the value of your investments may go down as well as up, and you may get back less than invested. If you want advice on investment choices, then we’d recommend speaking to a financial adviser. There may be a charge for advice.
This video is part of our wider Each chapter is designed to work alone, so you can jump in wherever you like.
What about tax?
SIPPs and ISAs are tax efficient, so you won’t pay income or capital gains tax on the profits you make on your investments through them.
If you’re investing outside one of those, including via our Investment Account, you may have to pay tax, regardless of whether you choose a growth fund or income fund. The information below applies to funds held in an Investment Account or similar investment.
With both growth and income funds, you'll pay capital gains tax on any increase in value when you sell your investment. The gain may be within your tax-free capital gains allowance, currently £3,000 for the 2026/2027 tax year.
You’re also subject to income tax on any interest and dividends you receive. Everyone gets a tax-free dividend allowance – currently £500 for the 2026/2027 tax year.
You also get a personal savings allowance; how much you get depends on your income.
Basic taxpayers get a personal savings allowance £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and zero for additional rate taxpayers.
Some investment returns may be received by funds with tax credits or after tax deductions which cannot be reclaimed.
Tax benefits depend on individual circumstances and are subject to change. Find more information here.
Ultimately, which fund you choose depends on your financial goals and future plans. While we hope this is a helpful overview of the differences between growth and income funds, it’s not intended to give advice. If you need a personalised recommendation based on your circumstances, you should get financial advice. You can find a financial adviser in your area at www.unbiased.co.uk and they’ll usually charge for their services.
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