Move to clarify investment funds

More investment-fund transparency that spells out exactly how particular fund strategies work and their levels of risk is being considered by the industry.

Says Association of British Insurers (ABI) spokeswoman Maggie Craig: "The introduction of a new sector is to help consumers find funds that offer greater stability.

"This is not about the introduction of new funds, but rather to bring in clearer labelling of what already exists. The new sector will run in parallel to the existing money-market sector.

"This initiative is in direct response to what consumers and advisers have been telling us they want. With volatility in the markets, many people want to easily choose a stable way to invest their money."

In order that consumers and financial advisers can compare funds with similar investment profiles, the ABI's sectors categorise different types of investment funds.

The new category would have stricter limits than existing ones on the type of financial instruments that funds could be invested in, to reduce volatility.

A consultation due to run until May 8 is seeking the views of a range of organisations including consumer groups and industry bodies.

The move was welcomed by the Investment Management Association.

Nicola Kembey, head of sectors at IMA, said: "In addition to the ABI's initiative, IMA is also involved in work to agree European-wide definitions for money market funds, which we expect to conclude towards the summer.

"We believe that this work is essential both to support the integrity of the funds in the sector, and to ensure that consumers understand what they are buying when investing in a fund with this label, regardless of their country of residence.

"Furthermore, in order to minimise confusion for UK consumers, the IMA and ABI have committed to harmonise their sector definitions where possible."