Each fund is placed in a risk category, of which there are typically five: very cautious; cautious; balanced; adventurous and very adventurous.

So, how do the following definitions apply to you?

Very cautious

You are not willing to accept any risk to your investment in the short term and wish typically to invest wholly in cash assets, typically savings accounts.

 You understand that the potential for growth is small and that, over the long term, inflation will reduce the buying power of cash assets. As you typically wish to invest entirely in cash assets, investment products are unlikely to be suitable for you as they will fluctuate in value. Product charges could exceed any growth and you could get back less than you invest.

Cautious

You're looking for an investment where the return over the long term is expected to be an improvement on that available from high street deposit accounts.

You are willing to take some risk in order to seek some growth potential, understanding that this will increase the amount by which your investment will fall and rise in value. However, under normal circumstances, you would feel uncomfortable if your investments fell and rose sharply in value and you could get back less than you invest. Typically, you would consider investing in cash, fixed interest, property and equities.

Balanced

You are looking for a balance of risk and reward with the aim that, in the long-term, higher returns may result than those available from more cautious investments.

You are willing to accept that the value of your investment will fall and rise in value and you're aware that you could get back less than you invest.

You would consider investing in a wide variety of assets, such as equities, cash, fixed-interest and property. Risk will usually be reduced by spreading investment across a variety of sectors and markets and/or limiting exposure to overseas markets.

Adventurous

You are willing to accept a high level of risk on your investment in order to seek higher growth potential, in the longer term, than is available on less speculative investments.

You are prepared to accept that this will increase the risk of large fluctuations in the value of your investment and of losing some or possibly all of your capital. Typically, you would consider investing in a narrow range of asset classes, primarily in equities, but there may also be exposure to currency risk by investing in overseas markets.

Very adventurous

You accept a very high level of risk on your investment in order to seek very high growth potential in the long term, with sharp day-to-day fluctuations in the value of your investments and the risk of losing some or all of your capital. Typically, you would consider investing in specialist equity markets or sectors expected to be particularly volatile, such as emerging markets.

This will give you a basic idea of what kind of risks you are willing to take with your investments. Stock market investing in not for the novices as you could end up with huge losses on your investments. A clear perspective about your own goals is necessary before you make any investment in the stock market.