Investing in funds

What you'll learn

  • What's a fund and why invest in one?
  • The difference between active and passive funds
  • Common types of funds
  • About fund pricing and why it’s important
  • That there are charges for investing in a fund.

It's important to understand what a fund is and how it works. If you have a pension or a stocks & shares ISA you'll likely to be investing in funds.  

What’s a fund and why invest in one

What’s a fund and why invest in one

A fund is a package of investments. Your money is invested with other people's money in one fund.

Some people enjoy researching and choosing their own investments and have the time and knowledge to do so. For those that don’t, funds give you access to lots of shares, bonds or other types of investment. By investing this way, you can spread risk.

Many funds are managed by a fund manager who does the hard work of deciding what investments to buy and when to sell them for you. 

Other funds simply track the performance of a range of companies listed on a stock market index.

 

Remember, fund performance isn’t guaranteed and fund values can rise and fall. 

This can mean greater returns, but it also means you could get back less than what you put in.

The way a fund is managed will either be ‘active’ or ‘passive’.

Active funds: aim to do better than the performance of the stock market or stock market index. Active funds have fund managers who use their expertise and research to decide what to invest in. They will regularly buy investments they think will do well and sell or reduce the amount invested in those that they think won’t do so well in the future.

Passive funds: also known as a tracker funds, aim to match the performance of a stock market index. They do this by investing in companies that represent the relevant index.

What is a stock market index?

What is a stock market index?

A selection of publicly listed company shares that are being bought and sold, for example the FTSE 100 is the index of the biggest 100 companies in the UK.

These are four of the more common types of funds
  

An Open Ended Investment Company (OEIC) gives you access to investments. There are different OEIC funds to suit the level of risk you are comfortable with. You buy shares in an OEIC fund.

Unit trusts are similar to OEICs but they issue units rather than shares. When you invest your money, you buy a number of units in the fund. 

Investment trusts - are different to other funds because they are bought and sold on the stock market. So, they have a share price, which moves up and down in value. Unlike OEICs and unit trusts, investment trusts have a set number of shares. This means you can only sell your shares if someone wants to buy them.

With-profits funds usually have a guaranteed minimum value paid at certain times and there may be bonuses from any profits made by the fund. These funds may keep back some of the gains earned in good investment years to pay bonuses in poorer investment years.

Many customers don’t realise that their pension or ISA could be invested in a fund which is then invested in other funds, that are known as the underlying funds.  

What is the fund's price?

A fund’s price:

  • determines how many shares or units in a fund you get for your money
  • determines how much you get when you sell your investment
  • is calculated and published once every working day, which will be used for any buying or selling
  • can go up and down depending on how investments are performing.

The aim is to sell when the price is high and buy when the price is low. 

Fund charges

When you invest in a fund, you’ll pay charges. If you access funds through a product, such as a pension or ISA, you may pay further charges.

You'll pay an Ongoing Charge. This includes

Annual Management Charges (AMC): This is for managing your investment.

Other expenses: associated with running the fund, for example, the transaction costs incurred when buying and selling investments in a fund.

You can find what charges you’re paying by reading your policy documents and, for funds at www.scottishwidows.co.uk/funds. These charges are taken directly from the fund you’re invested in. 

What next?

We hope this information has helped, if you want to understand more go back to learn more about investing.

Are you ready?

If you think you’re ready or are investing with us, go to:

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