Everything you need to know about investment funds and why they’re worth exploring for any investor.
There are so many options when investing and it can be overwhelming!
When investing, you have the option of picking your own investments, such as individual stocks and shares or property, or you could opt for an investment fund, where a mix of investments are chosen for you.
What is an investment fund?
An investment fund is a collective investment. In a nutshell, it pools together the money from lots of individuals and uses it to invest across a spread of different assets.
It’s like if a group of your friends put their money together to buy a bag of sweets. You pay less than if you bought the whole bag yourself and you all get a bit of everything.
The fund can either include lots of the same type of investments, such as company shares, or a mix of different ones. This is the case with multi-asset funds. As per the name, these often focus on a mix of assets together in the same fund.
All you really need to know is that you can invest in a bunch of different things, at the same time, in a single investment.
How do investment funds work?
Funds are made up of underlying assets that can include:
- Stocks and Shares – part ownership of a company, also known as equity
- Bonds – lending money to companies or governments in return for interest payments, also known as fixed-income investments
- Commodities – physical goods used in commerce. A common example is gold
- Cash or cash equivalent – cash and other assets that can be easily converted into cash
- Property – owning property directly, or indirectly through companies that do
The mix of assets in a fund’s portfolio will depend on its investment objectives.
For example, a high-risk, high-reward portfolio may have 80% stocks and shares, which are much more likely to experience highs and lows, and 20% bonds, which can offer more stability.
Why should I consider investment funds?
When you invest in a fund, you indirectly own the assets of the fund. This entitles you to a share of the profits, such as when a company’s value rises or when they pay a dividend to their shareholders.
The assets can either be actively managed by a fund manager who buys and sells investments on behalf of investors, or passively managed, which tends to track an index.
There are many reasons to explore investment funds. These include:
- Access to a wider mix of investment opportunities and more companies, different sectors, industries and regions
- Lower fees for passively managed funds, compared to choosing individual investments yourself or having someone do it for you
- Easier to manage than keeping an eye on a portfolio of different individual stocks moving at different times and rates
You can also invest with lower sums. As your money is pooled with others behind the scenes, you can benefit from greater diversification and buying power from smaller amounts. In other words, you’re not putting all your eggs in one basket. This means you’re not reliant on one company or asset to provide you with a return.
Whatever the investment fund, the big idea for growing your money is compounding. This means that when your initial investment makes money, it goes back into the pot and can make more money for you.
Where to get investment funds
You can usually start investing in funds via an online platform, fund manager or financial institution.
You are likely to be charged fees on your investment fund including a platform fee and a fee for the fund. If you choose to trade your funds live on a stock exchange, you may encounter additional charges.
Fund information, including the aims of the fund, past performance, risk profile and fees can be found in the documentation that accompanies each fund.
Remember, your investments can go up and down and you could end up with less than you started with. Past performance does not guarantee future results. The information provided is financial guidance and should not be considered financial advice.
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