Investment and funds
An investment fund is a collective investment vehicle that pools the cash of investors to invest in an investment portfolio consisting of bonds, shares or other assets. Each fund has a manager who decides the type of assets to purchase or sell, and charges an administration fee for the fund. There are various kinds of investment funds, including unit trusts (UCITS), OEICs and open ended investment companies (OEIGCs).
When investing in funds it is important to think about the reasons behind your decision as well as the time frame you wish to invest and your investor profile which is a reflection of your tolerance for risk. For example, younger investors may have more time on their side and are more comfortable with a higher amount of risk to achieve the highest growth potential over the longer term.
Diversification can be a great way to lower your risk as is saving. Diversification means spreading your money over different classes of assets that have lower correlations in their price movements. This allows you to offset the loss of value in one asset class by gains in another asset class.
Another way to limit the risk is to utilize smart beta or low-cost investments. These are funds that are managed by passively that attempt to replicate the movements of a specific index in the stock market like the FTSE 100, or S&P 500 without the need for judgment.
