Can you trust a fund that offers 8 pc?

SAVERS being lured into turbocharged investments offering whopping incomes could be buying funds that are quietly cutting their payouts.

Nearly one-fifth of UK income funds reduced the amount they dished out last year — in some cases by almost a third.

And a few big names are repeat offenders, cutting incomes for a second year in a row, according to research by online broker FundExpert.

For example, a saver who invested in the Fidelity Enhanced Income fund would have seen their payment drop by 27 pc last year compared to what they received in pounds and pence the year before.

Newton Higher Income fund paid out nearly 11 pc less in 2013 than the previous year and had cut income by 21 pc the year before

The income cuts will be particularly tough for investors who took out funds dubbed maximisers or boosters, which boast about juicy payouts of more than 8 pc a year.

This is far above what a UK income fund typically pays — 3.6 pc.

Income-starved savers prepared to take on some risk have turned to the stock market as rates on High Street accounts sit at around 1.2 pc after tax (1.5 pc before).

But you need to be wary of promises to deliver extra income because, as the saying goes, there’s no such thing as a free lunch.

The peril of getting a mouthwatering income is that you often end up sacrificing a lot of growth over the long term.

Turbo-charged investments look like normal funds, investing your cash in shares of companies to deliver you an income.

But the managers are doing deals behind the scenes using a complicated financial contract with a bank to boost your payouts.

What this means is that whenever markets are rocketing up, turbocharged investments don’t tend to perform as well as normal funds because the growth they’ve missed out on is greater than the income they get.

Fund group Schroders offers an Income Maximiser, which pays a hefty 7 pc a year. It has grown 38 pc over three years, boosting your £ 1,000 to £ 1,380. The normal Schroders Income fund, meanwhile, dishes out around 3 pc and has gone up 47 pc over three years — turning £1,000 into £1,470.

Not all these maximiser funds are the same, though.

Some use the turbo- charging strategy on most shares in the fund to get a higher income.

Others, such as the Fidelity Enhanced Income fund, do it for only some of the shares or around 60 pc of the money it invests.

Though this means you’ll get a slightly lower income, at 5.2 pc, there could be a higher chance of growing your money over the long term.

Over three years, the Fidelity fund has boosted £1,000 to £1,350.

Patrick Connolly, at advisers Chase de Vere, says: ‘ We use the Schroder Income Maximiser and Fidelity Enhanced Income for savers who need more income and are willing to give up some growth to achieve this.

‘ Schroders are the most experienced managers and produce a high level of income. The Fidelity fund has a lower yield, but also has a strong team running it.’

Savers looking for other high-income funds can turn to the Insight Equity Income Booster, which dishes out 8.2 pc; Premier Optimum Income, which shells out 6.4 pc; or the Ignis UK Enhanced Income offering 6 pc.

It is not just funds buying shares in UK companies that offer higher income. You can also get boosters or maximisers on companies in Asia and Europe and even property. Ben Seager- Scott, senior research analyst at broker Bestinvest, says: ‘These funds are great if you’re looking to turbo- charge your income.

‘But it could mean your money won’t grow as much over the long term, so if you’ re looking to boost your savings, there might be better funds out there that can still give you a decent payout.’

Mr Seager-Scott tips the Threadneedle UK Equity Income fund. It pays out 3.4 pc and is up 55 pc over three years, growing your £1,000 to £1,550.

For intrepid savers looking for a punchier fund, he suggests the Unicorn UK Income, which invests in smaller companies.

Though these shares are riskier, they can rocket up even higher than large companies.

It is vitally important you consider what you are investing for. Save in an Isa and the income and growth is tax-free.

Outside of an Isa, income is taxed at your highest marginal rate — typically 20 pc, or 40 pc for a higherrate payer.

And basic-rate tax payers have to hand over 10 pc on dividends.

Profits of more than £ 10,900 cashed in during this year are taxed at 18 pc or 28 pc, depending on your tax bracket.