Investing in equities (also known as shares) means you buy a stake in a company and can share in its fortunes or misfortunes as a part-owner.
The share price of a company can fluctuate for a variety of reasons, such as poor performance, market conditions, the views of investors, and changes in currency exchange rates.
For this reason, equities are higher risk than cash or bonds, but they generally offer the best prospects for growth if you are able to invest for a number of years and you reinvest any income you receive.
The risks related to investing in equities can be reduced if you invest through an equity fund. A fund manager selects a range of equities so you are less reliant on the performance of any one company.
It also means that you don't have to choose the right companies to invest in yourself, but can rely on the knowledge and experience of the fund manager to choose companies which they feel will perform the best.
Most equity funds come into one of the following categories:
Growth funds - these aim to achieve long-term capital growth. The fund manager selects companies which show the best potential for increasing their share price.
Income funds - these aim to generate an attractive income for investors. The fund manager will try to select companies that pay regular dividends. Their share prices tend to be less volatile than those of other companies.