What Investment Funds are Available

What investment funds are available?

Usually, a fund manager specalises in a particular investment type i.e. Equities and they switch investments within their fund from one investment to another as market conditions change. The investment funds offered by Unit Trusts, Investment Trusts and OEIC’s are numerous for example:

  • Money market – invest in deposits. These are low risk but cannot be expected to give high returns over the long term.
  • Bond-based – invest in corporate bonds, gilts and/or similar stocks. Medium to low risk and usually aim at providing income rather than growth.
  • Managed / Multi Asset – invest in a wide range of investments. They are suitable if you want a medium-risk investment. They can be aimed at providing income, growth or both.
  • Absolute Return - these type of Funds try to provide an absolute positive return normally over a rolling 3 year period.
  • Tracker Funds – unlike the other funds listed here, there is no fund manager actively choosing and switching stocks. Instead, the investments are chosen to move in line with a selected stock market index – such as the FTSE 100. Because there’s no active management, charges are usually lower.
  • Property – investing directly in commercial property, such as office blocks and shopping centres, and/or in the shares of property companies.
  • Equities i.e. Stocks and Shares - these can invest in particular areas such as; Global, UK, European, US, Asian or Japan.
  • Specialist – investing in particular sectors, such as Emerging Markets and/or particular types of assets, such as Commodities or UK Small Companies. Suitable only if you are comfortable with higher risk.
  • Ethical – these can be general or specialist funds, but some investments (for example, shares in defence companies) are excluded and others (say, shares in companies with good employment practices) are actively selected.

Investments

What are Open-Ended Investment Companies (OEIC’s)?

An OEIC is a company whose business is managing an investment fund.

You take a stake in the fund by buying the shares of the OEIC. It is an ‘open-ended fund’ which means that the fund gets bigger and more shares are created as more people invest. The fund shrinks and shares are cancelled as people withdraw their money.

The price of the shares is based on the value of the investments the company has invested in.

You usually pay an initial charge when you buy and sell OEIC shares, but otherwise there is no difference between the buying and selling price of shares. Because of this OEIC’s are referred to as being ’single priced’. Some OEIC’s have no initial charge – sometimes there is an ‘exit charge’ instead when you withdraw your money. The company takes a yearly management fee direct from the investment fund.

What are Unit Trusts?

A Unit Trust is an investment fund shared by lots of different investors. It is an ‘open-ended fund’ which means the fund gets bigger as more people invest and gets smaller as people withdraw their money. The fund is run by a fund manager who makes the investment decisions.

The fund is divided into segments called ‘units’. Investors take a stake in the fund by buying these units. The price of a unit is based on the value of the investments the trust has invested in.

You usually pay an initial charge when you buy (this charge leads to a difference – called the ’spread’ – between the prices at which you can buy and sell units). Some Unit Trusts have no initial charge – sometimes there is an ‘exit charge’ instead when you withdraw your money. With all Unit Trusts, the company running it takes a yearly management fee direct from the investment fund.

What are Investment Trusts?

An Investment Trust is a company whose line of business is investing in other companies.

The Investment Trust company has shares and is quoted on the stock market. You take a stake in its fund by buying the shares of the company. It is a ‘close-ended fund’ because there are a set number of shares and this number does not change regardless of the number of investors.

The price of the shares reflects the value of the investments in the fund, but is affected by other factors too. If there are more people wanting to sell their shares than people wanting to buy, the share price tends to fall. If there are more buyers than sellers, the share price tends to rise. The company can borrow money and use it to buy more investments – this boosts the company’s returns when the investments perform well but magnifies losses if investments do badly.

Investment Trusts often issue different types (‘classes’) of shares to suit different types of investor. Some suit investors seeking income; others suit investors wanting growth.

You usually pay dealing charges when you buy and sell Investment Trust shares and the difference between the prices at which you can buy and sell (the ’spread’) is in effect another charge. There is also a yearly management fee which comes out of the investment fund.



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