Managed fund types

International share funds invest in shares of companies listed on share markets outside Australia. They include funds that specialise in a particular sector (say, biotechnology) or region (such as Europe).

Investing in overseas shares may provide access to high growth opportunities such as the world's leading pharmaceutical, aerospace and electronics companies.

Managed funds offer a convenient and easy way to tap into these international opportunities. However, international shares also carry higher risk.

Australian share funds invest in shares of listed Australian companies. They include 'small companies' share funds that typically invest in companies outside of Australia's 200 biggest.

Some Australian shares offer franking credits. This means that they pay tax on their profits before distributing to shareholders. As a result, investors may be able to claim a tax credit called dividend imputation for the amount already paid by the company. Not all Australian companies offer this.

Many of us think of real estate when we consider property investment. A managed fund that invests in property can do so directly or indirectly by buying shares in property companies and trusts listed on the stock exchange.

Property securities are available across a range of different property sectors, such as commercial, office, industrial, hotel and retail.

A property securities investment is considered a growth asset. It offers the potential for both capital growth and income.

Bonds are fixed-interest securities that offer a regular, fixed return. They can either be held to maturity, when they are paid out, or traded on a secondary market.

If you buy a bond, you're really lending the issuer money for an agreed time. In return, the issuer undertakes to repay the amount to you in full at the end of the agreed time. The issuer also pays you regular interest payments, known as coupons, during this time period.

You also make a profit if the bond value increases between the time you purchase it and the time you sell it. Similarly, you can make a loss if the value falls.

There's more to investing in cash than just putting your money in the bank.

Cash investing is like investing in a portfolio of very short- Investments can include bank bills, floating rate notes, bills of exchange, commercial paper and certificates of deposit. Cash is a low-risk investment but returns are also generally low.

Because cash funds invest in a wider range of assets than a bank savings account, they're often able to offer you a better rate of interest.

Diversified funds invest in a number of different asset types - typically a combination of shares, bonds, property and cash. Some also invest a portion in alternative investments.

There is more than one type of diversified fund. Typically, investment managers offer the choice between:

• growth funds - which invest mainly in shares and property
• income funds - which invest mainly in bonds and cash
• balanced funds - which provide a balanced combination of growth and income investments.