INCOME REQUIREMENTS

Amongst other ways of classifying funds, they may be classified according to the income requirement:

- Funds Principally Targeting Immediate Income Designed to produce a higher than average income but very little growth of income or capital Principally Targeting Income Designed to produce a growing income aiming to achieve a yield 10% higher than the index of larger companies in the relevant market Funds Principally Targeting Capital Designed to achieve capital growth and to maximise total return If an immediate income is required, then it has to be recognised that this will probably only be achieved at the expense of capital growth. On the other hand, this is not always the case.

Investors are rightly concerned with total performance. At certain times in the past, high income funds have outperformed growth funds taking both income and capital gain into account.

Therefore, it will be necessary to invest in an income fund if a higher than average income yield is required. Such funds may distribute income to investors on a monthly, quarterly, half-yearly or annual basis.

Where the fund offers a very high yield, care is required. Remember the earlier advice that yield and risk go hand in hand - the higher the yield on offer, the higher the risk.

Some high income funds achieve the higher yield by investing in lower investment grade corporate bonds (loan stocks issued by less credit worthy companies). Please also bear in mind that the decision to receive income rather than to seek capital growth may not be tax efficient for you - taxation advice should be sought if in doubt.