A fund gives you access to investments, which are chosen and managed for you by a fund manager. A fund manager decides what to invest in and when to buy and sell the investments. The investments in a fund are typically a range of shares in companies or other types of investments, such as property. There are a variety of funds to choose from depending on the level of risk you wish to take.
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 top 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. We refer to these as multi-asset funds and the funds they invest in 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.
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.