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Risk and return ratings

Ratings for Aviva and ex-Friends Life funds

Aviva risk and return ratings

We give each fund a risk/return rating, ranging from 1 (low) to 5 (high). Each rating is a measure of the approximate risk/investment return potential of that fund.

When it comes to investments, ‘risk’ refers to the possibility of losing money. ‘Return’, on the other hand, is any gain you make on top of what you had originally invested.

Higher risk investment funds tend to be capable of much greater returns than lower risk ones. But there’s more chance you’ll lose money with them. With less risky funds, there’s less chance of losing money, but there's also less potential for your investments to increase significantly in value.

This chart shows the relationship between the two:

Please remember that whatever their risk categories, the value of our investment funds is not guaranteed and can go down as well as up. You could get back less than has been paid in. Some funds have particular risks associated with investing in them.

risk ratings

Aviva’s risk and return ratings defined

We regularly review the ratings we give each investment fund. So they might change from time to time. The fund centre is kept up to date with the latest risk rating.

Risk/return rating Typical fund characteristics
1 (Low)
Funds with this rating usually aim to provide returns similar to those you’d get from deposit and savings accounts, although there’s still a risk the value of your investment could fall.
2 (Low to medium)
Expected to provide better long-term returns than savings accounts. Typically invest in high quality corporate bonds or provide a form of guarantee or capital protection, although there is still a risk the value of your investment could fall.
3 (Medium)
Typically don’t offer guarantees, but have the potential for better long-term returns than lower risk funds, although there’s a risk the value of your investment could fall. Generally invest in a diversified mix of assets or in fixed income bonds issued by higher risk companies.
4 (Medium to high)
Funds that typically invest in shares of companies in the UK or other major stock markets. Fund prices may fluctuate significantly but offer the potential for good returns over the long term.
5 (High)
Funds that invest in the higher risk sectors (typically emerging markets or specific themes), offering the greatest potential for long-term returns but the highest price fluctuations and risk to your money.

Risk factors

You’ll also need to consider the 'risk factor' of a fund, depending on what it invests in. For example, a fund investing in overseas assets will be affected by the exchange rate. The sections below explain what these are.


Ex-Friends Life

Ex-Friends Life funds categorise risk levels by taking account of the volatility of the types of asset in which they invest. Volatility means the ups and downs in an investment’s value over a period of time.

Ex-Friends Life funds are graded on a risk scale of 1 to 7, with 1 being the very lowest and 7 being the highest.

Risk ratings for ex-Friends Life funds are explained in more detail below:

The risk rating assigned to each fund will match one of the defined ratings, or investment approaches, below:

Risk Rating Code Risk Rating Key Risk Rating description
1
1 - Lowest volatility
The historical performance of funds with this risk rating have typically experienced the lowest volatility of all the ex-Friends Life funds. This means that these funds have the lowest potential for substantial changes in value compared with other ex-Friends Life funds.
2
2 - Low volatility
The historical performance of funds with this risk rating have typically experienced low volatility compared with other ex-Friends Life funds. This means that these funds have a low potential for substantial changes in value compared with other ex-Friends Life funds.
3
3 - Low to medium volatility
The historical performance of funds with this risk rating have typically experienced low to medium volatility compared with other ex-Friends Life funds. This means that these funds have a low to medium potential for substantial changes in value compared with other ex-Friends Life funds.
4
4 - Medium volatility
The historical performance of funds with this risk rating have typically experienced low to medium volatility compared with other ex-Friends Life funds. This means that these funds have a low to medium potential for substantial changes in value compared with other ex-Friends Life funds.
5
5 - Medium to high volatility
The historical performance of funds with this risk rating have typically experienced medium to high volatility compared with other ex-Friends Life funds. This means that these funds have a medium to high potential for substantial changes in value compared with other ex-Friends Life funds.
6
6 - High volatility
The historical performance of funds with this risk rating have typically experienced high volatility compared with other ex-Friends Life funds. This means that these funds have a high potential for substantial changes in value compared with other ex-Friends Life funds.
7
7 - Highest volatility
The historical performance of funds with this risk rating have typically experienced the highest volatility of all the ex-Friends Life funds. This means that these funds have the highest potential for substantial changes in value compared with other ex-Friends Life funds.

Please note

These investment risk ratings are based on our interpretation of investment risk and are only meant as a guide. These levels of investment risk are not guaranteed and may change in the future.


Fund risk warnings

As well as the general risk ratings there are specific risks associated with investing in some funds, or types of funds. We recommend you read through these before making your fund choice.

Not all of these warnings apply to each fund and there is no direct relationship between the number of fund risk warnings and the investment risk rating for a fund.

Risk Warning Code Risk Warning Description
A - General

Investment is not guaranteed: The value of an investment is not guaranteed and can go down as well as up. You could get back less than you have paid in.

Specialist funds: Some funds invest only in a specific or limited range of sectors and this will be set out in the fund’s aim. These funds may carry more risk than funds that can invest across a broader range or a variety of sectors.

Suspend trading: Fund managers often have the ability, in certain circumstances, to suspend trading in their funds for as long as necessary. When this occurs, we will need to delay the ‘cashing in’ or switching of units in the relevant fund. You may not be able to access your money during this period.

Derivatives: Derivatives are financial contracts whose value is based on the prices of other assets. Most funds can invest in derivatives for the purpose of managing the fund more efficiently or reducing risk.

Some funds also use derivatives to increase potential returns, known as ‘speculation’. For those funds we apply an additional risk warning (see Risk F).

B - Foreign Exchange When funds invest in overseas assets the value will go up and down in line with movements in exchange rates as well as the changes in value of the fund’s holdings.
C - Emerging Markets Where a fund invests in emerging markets, its value is likely to move up and down by large amounts and more frequently than one that invests in developed markets. These markets may not be as strictly regulated and securities may be harder to buy and sell than those in more developed markets. These markets may also be politically unstable which can result in the fund carrying more risk.
D - Smaller Companies Where a fund invests in the shares of smaller companies, its value is likely to move up and down by large amounts and more frequently than one that invests in larger company shares.  The shares can also be more difficult to buy and sell, so smaller companies funds can carry more risk.
E - Fixed Interest Where a fund invests in fixed interest securities, such as company, government, index-linked or convertible bonds, changes in interest rates or inflation can contribute to the value of the investment going up or down. For example, if interest rates rise, the value is likely to fall.
F - Derivatives

Derivatives are financial contracts whose value is based on the prices of other assets.  

The fund invests in derivatives as part of its investment strategy, over and above their use for managing the fund more efficiently.  Under certain circumstances, derivatives can result in large movements in the value of the fund and increase the risk profile, compared to a fund that only invests in, for example, equities.  The fund may also be exposed to the risk that the company issuing the derivative may not honour their obligations, which could lead to losses.

G - Cash/Money Market Funds These are different to cash deposit accounts and their value can fall. Also, in a low interest rate environment the product or fund charges may be greater than the return, so you could get back less than you have paid in.
H - Property Funds

The fund invests substantially in property funds, property shares or direct property.  You should bear in mind that 

• Properties are not always readily saleable and this can lead to times in which clients are unable to ‘cash in’ or switch part or all of their holding and you may not be able to access your money during this time

• Property valuations are made by independent valuers, but are ultimately subjective and a matter of judgement

• Property transaction costs are high due to legal costs, valuations and stamp duty, which will affect the fund’s returns

I - High Yield Bonds The fund invests in high yield (non- investment grade) bonds.Non-investment grade bonds carry a higher risk that the issuer may not be able to pay interest or return capital. In addition, economic conditions and interest rate movements will have a greater effect on their price. There may be times when these bonds are not easy to buy and sell. In exceptional circumstances, we may need to delay the ‘cashing in’ or switching of units in the fund and you may not be able to access your money during this period.
J - Reinsured Funds Where a fund invests in an underlying fund operated by another insurance company through a reinsurance agreement, if the other insurance company were to become insolvent, you could lose some or all of the value of your investment in this fund.

View our fund range

Once you’ve read all the important information above, why not visit our fund centre to view our funds?