Share classes explained

An investment fund may have different share classes for different types of investor and you are often given the choice between an accumulation share class or an income share class.

The difference between the two is simple, but significant. If you buy the accumulation share class, any income produced by your investment will be automatically reinvested back into the fund.

In contrast, if you choose an income share class, you can either opt to receive the income produced in the form of a regular payment (depending on the individual fund, this may be monthly, quarterly or annually), or choose to reinvest your income (more shares will be bought for you using the income you would otherwise have received).

Which share class you should choose really depends on why you are investing. If you need a regular income from your investments then the income share class might be for you. However, if this is not the case then the accumulation share class may be better because the reinvested income provides greater potential for growth of your investment over time.

Read more: How to invest for income

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views of the author and any people interviewed are their own and do not constitute financial advice.