Investment funds

There are a whole range of funds out there such as unit trust, OEICs and offshore covering shares, bonds, or other sectors such as commercial property. Each invests in a number of assets within their chosen sector, from as few as 20 up to several hundred. Investors can also look at multi-asset funds which, as the name suggests, combine exposure to a range of areas such as shares, property, and commodities. Some funds are passive in that they track the performance of a stock market index such as the FTSE 100, others are actively managed with regular selections made by a fund manager who aims to perform better than an index.

As with buying a single stock you need to consider factors such as the fund’s track-record of returns, the strength and experience of the fund management team, independent ratings from providers such as Morningstar and charges. Then it’s a case of finding a fund or portfolio of funds that suits your value, growth or diversified strategy or covers a sector you have knowledge of or interest in. At Bestinvest we have comprehensive fund factsheets as well as guides and other insights to help you.

When buying a fund you will often have a choice of two main share classes. One is called Inc which stands for income, and one is called Acc which is short for accumulation. Some funds just have one or the other.

If you select Inc, then the fund will pay any income generated by it to you as a regular dividend. You can find out when those payments are made by checking out the fund’s distribution dates.

In an Acc fund dividends, instead of heading into your wallet, get reinvested back into the fund. As a result of this compounding the net asset value – the total value of a fund’s assets minus its liabilities – is higher. This means investors should get more cash in their pockets when they come to sell their units in the fund. Whether it is an Inc or Acc fund you can sell or buy units daily.

They lead the fund’s investment strategy and strive to meet its aims of making a strong return for investors. They manage the fund’s portfolio, selecting new holdings and jettisoning others based on their view of each company’s merits. Investors should research a manager’s style and historic performance before making their selection.

You can buy a fund from a broker or an investment platform like Bestinvest. It is also possible to buy funds directly from the investment companies offering them. Whichever route you take, be mindful of fees and charges as well as minimum investment amounts.

The risks associated with investing in funds are similar to those when you buy shares. The price can go up or down depending on the strength or otherwise of the index, asset, or sector the fund is invested in and you may not get back the amount invested. But, in general, a fund gives you valuable built-in diversification as you have a basket of holdings within it. You can further limit risks by diversifying your fund portfolio by sector, style, or country. This, in turn, can create growth opportunities as you have exposure to sectors such as Emerging Markets stocks which you may not have considered buying directly.