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Investing in funds

Investing in funds

Funds are collective investments, meaning a large number of people can invest in a fund at the same time.

Although you choose to invest in a single fund, your money is actually spread across a wide range of underlying investments. That helps you to spread your overall risk by putting your money into lots of different things.

Investing in a fund is different from investing directly in shares. The fund will be run by a professional fund manager with a team of researchers and analysts, to help identify the best opportunities. The manager will make a charge for their services that they deduct directly from the fund.

The fund manager will carefully allocate your money across numerous investments like shares and bonds and buy, sell or hold them according to the investment objective for the fund. Funds are normally bought or sold at a price that is set once a day. You can invest in a fund through your Investment ISA, SIPP or MarketMaster® account.

Find out more with our video 'An overview of funds'

Want to learn more about how Barclays can help? Browse our extensive funds research to find all the information you need.

A fund normally has a specific investment focus, such as a type of company, industry or asset that's usually in a set location or economy. Other funds track a stock market index such as the FTSE100 or have a more general objective. For example, they might aim to invest in companies striving for capital growth or high-income returns.

Each fund issues a Key Investor Information Document (KIID). The KIID sets out the fund's key details and objectives, and includes details of the fund's risk profile, performance and charges including the Ongoing Charges Figure (OCF). Before investing in a fund, you must confirm that you've read its KIID.

Fund managers offer their services in return for an Annual Management Charge (AMC) which is taken from the fund's value. The Ongoing Charges Figure is made up of the AMC charged by the fund manager along with the other costs of running the fund. Details of both figures are on the fund factsheet found in our funds research centre.

Funds offer many advantages to all kinds of investors. However, as with all investments, they carry risk. You need to be prepared to take that risk as you could get back less than you initially invested. If you're not sure what fund is suitable for you, it's best to seek independent advice.

There are funds to meet almost any investment goal but before you invest you should consider your personal circumstances, your objectives, how long you want to invest for and your attitude to risk.

Investing in funds is straightforward, so they're great for beginners. They're also popular with more experienced investors looking to access specialist overseas markets. Funds are designed as medium-long term investments. Although you won't be tied in, if you're not prepared to invest in a fund for at least five years then it might not be the right investment for you.

Other benefits include:

  • Professional management
    Investment decisions are made by experienced fund managers with access to specialist research and analysis. This expertise can secure better results than a dedicated private investor. Alternatively, you can invest in funds that track a stock market index such as the FTSE 100. These offer lower fund management costs.

  • Diversification
    Even if you only invest in one fund, your investment will be spread across a large number of underlying assets. This can lower risk as your money isn't concentrated in a few individual shares. So if one of the fund's assets isn't performing well, the overall fund can still generate returns.

  • Liquidity
    Buy or sell funds at short notice (usually daily).

  • Economies of scale
    Fund managers buy and sell investments in large quantities. Any associated costs are spread over a pool of investors so they're normally lower per person.

  • Convenience
    Funds allow you to indirectly invest in many underlying companies with just one transaction. It's also easier to monitor the performance of one fund rather than a large number.

  • Choice
    There's a huge range of funds available covering many different asset types and economies around the world. With over 2,000 available, you should be able to find a fund that meets your investment goals.

  • Low cost
    If you invest only in funds through your Investment ISA, SIPP or MarketMaster®, you won't pay any account administration charges with Barclays Stockbrokers.

  • Things to remember
    However, as with all investments, funds carry risk. You need to be prepared to take that risk as you could get back less than you initially invested. If you're not sure what fund is suitable for you, it's best to seek independent advice. There are funds to meet almost any investment goal but before you invest you should consider your personal circumstances, your objectives, how long you want to invest for and your attitude to risk.

Fund Types

Funds can invest in single or multiple asset classes. An asset class is a group of investments that have similar characteristics and behave in similar ways. Asset class examples include:

  • Equities
  • Bonds
  • Property
  • Cash

Unit trusts and OEICs

Unit trusts and OEICs are both open-ended investments, meaning units or shares can be issued or cancelled according to supply and demand. Both types of fund may have either a single price for both buying and selling, or have two prices, a bid price at which you sell and an offer price at which you buy.

Unit trusts and OEICs have different legal structures, but these have little impact on how you invest.

Investment Trusts and ETFs

Investment trusts are also known as closed-ended funds. Unlike a unit trust or OEIC, the number of shares issued by an Investment Trust is fixed.

When you want to invest in one, you don't buy shares directly from the fund manager. Instead, you simply buy shares as you would in a regular share deal. Investment Trusts are listed on the stock exchange and are essentially companies whose business is to invest in the shares of other companies or assets such as bonds or property.

The result is that, unlike investing in an open-ended fund, the price of an investment trust share isn't simply linked to the value of its assets. Instead, it rises and falls in response to supply and demand, just like any listed share.

Active and passive funds

One fundamental difference between funds other than what they invest in is whether they follow active or passive investing strategies.

Both of these approaches normally use a benchmark that reflects the market they invest in - for example a UK share fund might have the FTSE 100 as a benchmark. But the way they use the benchmark is very different.

In an active fund - often referred to as a managed fund - the fund manager attempts to "beat the market" by outperforming the benchmark. They can't outperform all the time - something many investors forget when they focus too much on short-term performance. But over longer periods, they hope the shares they pick will do better than average.

Passive investing simply attempts to match the return on the benchmark as closely as possible. A passive fund - often referred to as a tracker fund - still has a manager, but they don't select investments. Instead, they buy and sell them to ensure that the fund's holdings reflect the benchmark. As the amount of management is limited, management costs tend to be lower for passive funds.

Find out more with our video on Active vs. Passive Investing

Multi-Manager funds

A Multi-Manager Fund is an easy and simple way to get a diversified exposure across different asset classes such as shares and bonds, while benefitting from the expertise of investment managers. Multi-Manager funds combine a range of specialist fund managers who look for the best funds available. Having a portfolio diversified across different assets classes may create a less risky investment experience than if you were to invest in a single asset class.

Find out more by watching our Multi-Manager funds video on Stockbrokers TV

Things to remember

Funds offer many advantages to all kinds of investors. However, as with all investments, they carry risk. You need to be prepared to take that risk as you could get back less than you initially invested. If you're not sure what fund is suitable for you, it's best to seek independent advice. There are funds to meet almost any investment goal but before you invest you should consider your personal circumstances, your objectives, how long you want to invest for and your attitude to risk.

†0808 calls are free if made from a UK landline. Calls to 0141 numbers are charged at local rate. Mobile costs may vary - please check with your telecoms provider. Our opening hours are 8am to 6.30pm Monday to Thursday, 8am to 6pm on Friday (excluding bank holidays) and 9.30am to 12.30pm on Saturday.

Remember:

  • The value of your investments can fall as well as rise and you may get back less than you initially invested
  • Investing is not for everyone, if you are unsure please seek independent advice.
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