We categorise our funds using a list of 'fund types' so that similar types of funds can be compared more easily.
These fund types are mainly decided by the types of ‘asset class’ a fund invests in. An asset is anything of value that can be invested in. Assets with similar characteristics are grouped together to form ‘asset classes’. There are four main asset classes – equities (shares), cash, bonds and property – each with different pros and cons.
An investment fund will invest in one or more asset classes. We categorise a fund based on what type and share of asset class/classes it invests in. For example, funds in the ’Equities’ category will mainly invest in equities. Some funds may also belong to more than one category. For example, an equity fund that aims to follow a specific stock market index will also be in the 'Tracker' category.
Knowing what category your funds are in lets you compare one fund with another of a similar nature. The funds available for your plan can be filtered by fund type in the Fund Centre.
Please remember that the value of your investments can go down as well as up, and may be worth less than the amount paid in.
Cash/Money market funds are lower risk investments aimed at giving similar growth to bank/building society interest rates. Although this is the least risky of the asset types, these funds can still fall in value. They invest in cash and cash alternatives:
- Cash means a range of short-term deposits – similar to a bank/building society account.
- Cash alternatives are money market securities, which are interest generating investments, issued by governments, banks and other major institutions.
Corporate bonds are issued by UK and international companies as a way for them to borrow money. The company pays interest on the loan and promises to repay the debt at a certain point in time.
They are seen as riskier investments than gilts, which are loans to the UK government. This is because companies are more likely to fail to repay the loan than the UK government. However, they often offer a higher rate of return to balance out this higher risk. The highest risk bonds tend to offer the highest potential returns; these are known as high yield bonds.
A corporate bond fund will usually invest in a range of bonds which means you’re spreading the risk in case one company can’t pay back the money it owes.
Interest rate movements have an impact on corporate bond and fund unit prices. So for example, as interest rates rise, bond prices fall. This would affect the value of your investment.
If you need to access your money quickly it is possible that, in extreme market conditions, it could be hard to sell holdings in corporate bond funds. This means there could be a delay in receiving your money.
Distribution (applicable to bonds only)
Distribution funds aim to provide a regular income. They invest in income-generating assets like shares that pay dividends; corporate bonds that pay interest; and commercial (business) property that receives rental income. You receive the income produced by the fund, minus any fund charges.
Funds where the choice of investments is influenced by social, environmental or other ethical criteria.
Some of these funds undertake ethical screening to meet their investment aims because they are unable to invest in certain sectors and companies. This may mean that they are more sensitive to price swings than other funds.
Equities are shares in companies listed on stock exchanges around the world. As shares can rise and fall in value very easily, equities are riskier than most other investments. However, they usually offer the greatest chance of higher returns over the long term.
Some funds invest only in certain countries, while others invest in companies from all over the world. Others only invest in certain types of company, such as technology companies. Generally, the more specialised the fund is, the higher the risk to your investment.
Gilts are bonds issued by the UK government as a way for them to borrow money, usually for a fixed term. The government pays interest on the loan. As they are issued by the UK government, they are generally seen as lower risk investments than bonds issued by companies (corporate bonds).
As gilts can be bought and sold on the open market, their value can rise and fall.
Global bond funds are funds which invest in bonds issued by companies (corporate bonds) and governments from around the world.
Guaranteed (applicable to bonds only)
The guaranteed funds offer a fifth anniversary guarantee on a percentage of your original investment into the fund. Any withdrawals or switches out of the guaranteed funds before the fifth anniversary will reduce the guarantee in proportion to the number of units cancelled, rather than the cash amounts taken from the fund. In this event, you may not get back the full amount of your original payment into the fund.
The funds invest in a mix of assets including equities. The proportion of your money invested in equities provides most opportunity for your investment to grow. The value of equities can go down as well as up depending on market conditions. If the market goes down, the fund manager will sell equities to make sure the value at the fifth anniversary doesn’t go below the guaranteed amount. Similarly, if the markets go up, the fund manager may increase the equity proportion, so increasing the potential for growth. In short, as market conditions change during the five-year period, so will the proportion of equities in the fund, which could limit the growth potential.
On the fifth anniversary you can choose to:
- reinvest into another fund (including a new guaranteed fund)
- cash in your bond and invest in another product, or
- cash in your bond and take the money.
Mixed asset funds invest in a range of assets such as equities, corporate bonds, gilts, property and cash.
The diversification offered by these funds helps spread the risk to your money. If one type of asset falls in value, another type may offset that reduction in value by performing well. In that way, it’s possible that the overall value of your investment may not fall.
These funds invest mainly in commercial property, such as shopping centres and business offices. They may also invest in indirect property investments, including quoted property trusts and unregulated collective investment schemes
The funds may also hold geared investments. With these, the investment manager borrows money to boost potential growth and income. The manager repays the loan from the returns and uses the remaining returns to increase profits for investors. Geared investments can carry a higher degree of risk than normal investments and can also fall sharply or suddenly in value.
A valuer’s opinion often decides the value of property investments and it may not be possible to sell property investments immediately. That means there could be a delay if you want to move all or part of your investment out of funds investing in property. We may have to delay payments, or transferring or moving your money for up to six months.
If a property fund invests in a collective fund which suspends trading, the property fund may hold more cash than usual until the underlying collective fund begins trading again. This could restrict growth potential as cash investments have less potential for growth than property investments.
Please remember the value of property can go down as well as up and is not guaranteed.
This type of investment covers funds that don’t fit into the other fund types. For example, they may invest in assets such as infrastructure, commodities, derivatives and hedge funds or may be free to invest in any asset type at any time.
Each fund in this group will invest differently, so you should check its fact sheet for the fund objective, risk rating and asset details.
Because these funds have no common characteristics, it is not appropriate to compare their performance.
These funds aim to perform in line with a particular index. They are often referred to as passive rather than active managed funds.
Funds can track the index in three main ways and more than one method may be used. The fund can try to:
- hold the same assets as the index in the same proportions
- decide on a selection of holdings to still closely mirror the index performance, and/or
- use derivatives. (Derivatives are a financial contract whose value is based, or derived from, a traditional security or asset (stock, bond or commodity) or a market index.)
This is a special type of mixed asset investment. It shares the profits and losses of a with-profits fund with investors through a system of bonuses. Your payment buys units in a with-profits fund. For most with-profits funds, the price of these units increases with the addition of regular bonuses.
The aim of a with-profits fund is to spread out profits or losses from one year to the next. This is called ‘smoothing’ and is unique to with-profits investments. The effect of smoothing means you’re likely to see a steadier return year on year, rather than watching the value of your investment rise and fall in line with stock market fluctuations.
As a result of smoothing, the investment risk on a with-profits fund is lower than investing directly in the same equities or property.
However, we may have to apply a market value reduction if you move money out of a with-profits fund. This could happen where there’s been a large or sustained fall in stock markets or when investment returns are below the level we normally expect. This would reduce the value of your investment. We apply a market value reduction to make sure all our customers receive their fair share of the returns earned over the period of their investment. We guarantee we will not apply a market value reduction on your death.
If you’re a pension customer and you keep your money invested in the pension With-Profit Fund until the retirement date you originally chose, we guarantee that we will not apply a market value reduction. This doesn’t apply:
- if you started your plan within five years of your chosen retirement date
- to new one-off investments or increases to regular contributions (other than automatic increases which have already been agreed by us) made within five years of your chosen retirement date
- to any existing investment moved into the With-Profit Fund within five years of your chosen retirement date
- to switches out of the With-Profit Fund.
If you move out of the With-Profit Fund before or after your originally selected retirement date, we may apply a market value reduction when you take your benefits.
The above information given is an overview of the MVR rules that apply to our products. The specific MVR rules and any MVR guarantees that may apply for your plan will be shown in either the Policy Document or Technical Specification document given to you when you joined your plan. The information given above should not be taken as the actual MVR rules applying to an individual policy.
You can find out more about with-profits funds on our with-profits investment pages
Our Principles and Practices of Financial Management (PPFM) provide more detailed technical information about how we manage our With-Profit Fund.