Investing guides

Quick guides

What are funds?

Funds are 'collective' investments which pool your money with other investors. A fund manager uses that money to buy and sell a wide range of investments on your behalf. Fund performance therefore depends on the overall performance of investments in that fund.

Why invest in funds?

Take a more ‘hands off’ approach to investing.
Tap into the expertise of fund managers.
Invest generically in regions, sectors or investment types.
Diversification is achieved without a large investment
Lower the cost of building a diverse portfolio.

Whether you favour an income, growth or balanced investment strategy, there’s a wide choice of suitable funds available.

The three options are funds, investment trusts or exchange-traded funds (ETFs).

Read our beginner’s guide on funds, investment trusts and ETFs to find out which may be the best option for you

Fund charges

Investors pay an annual fund charge, which is called the ongoing charge figure (OCF). Fund charges vary, but an actively managed fund investing in a developed market, such as the UK, tend to cost 0.85% a year, which works out at £8.50 on a £1,000 investment.

Unfortunately, trading costs (incurred when the fund manager buys or sells investments) are not included in the OCF, so the true annual cost will be higher than the stated OCF.

Read our jargon buster to get to grips with the investment lingo

How to invest in funds

Simply open an account with interactive investor and pay in some money. You’ll then be ready to buy and sell funds using your online account.

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Daily price movements tend to be small, so generally, funds are valued once a day (usually at midday). Orders placed before the cut-off time will usually be at that day's price and orders placed after will usually be at the following day's price.

Sometimes you'll see two versions of the same fund:

1. Accumulation (acc) - Income is reinvested in the fund.

2. Income (inc) - Income is paid out to you.

- Accumulation versus income funds: which is better?

Which funds should beginner investors consider ?

Multi-asset funds are viewed as a sensible starting point. These funds split your money across a mix of different assets, but they mainly buy shares, bonds and property. Some may also have a small amount of exposure to so-called alternative assets, such as gold.

A mixture of assets will, in theory, perform differently from each other in different market conditions, which will help your portfolio grow and avoid large fluctuations in overall value when stock markets fall.

interactive investor has six quick-start funds aimed at beginner investors to help make investing easy. Each fund invests in both shares and bonds. We offer a choice of three passively managed funds from Vanguard and three actively managed funds from BMO Global Asset Management.

- Our guide will help navigate beginner investors through the six choices.

These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The value of your investments, and the income derived from them, may go down as well as up. If in doubt, please seek advice from a qualified investment adviser.