Investing in funds

Investing in funds

Learn more about different types of funds and how to choose one for your portfolio

If you are looking to start investing in the markets or would like help with managing your investments then funds or collective investments are worth considering for your portfolio.

Funds explained by Russ Mould, AJ Bell Investment Director

One of the major advantages of funds is they allow you to cost-effectively build a diversified portfolio. By investing even a few hundred pounds in a fund you can get exposure to far more companies and indices than you could by putting money directly in the market yourself.

In addition the vast range of funds available allows you to choose a particular geographic market, a range of industry sectors or a specialist asset class such as bonds to suit your investment objectives.

Active or passive funds

There are two main types of funds – active and passive.

Active funds are run by a professional fund manager, who selects what goes in the portfolio. The aim is to beat their benchmark index and outperform the market, to give you premium returns.

Passive or tracker funds aim to mirror, or track, the performance of a key benchmark or index such as the FTSE 100.

Benefits of investing in funds

  • Diversify your portfolio – when you buy a fund you get access to the range of investments held by the fund. As many funds invest across the global markets you get exposure to markets and companies that are not normally easy to deal in
  • Expert fund management – if you choose an active fund the fund manager will aim to beat their benchmark so if you pick a good one you may do better than the overall stock market
  • Choice – you can choose from over 4,000 funds with us and many funds offer access to specific asset classes, markets or geographical locations
  • Easy to manage – the fund manager will make the investment decisions for active funds so you don’t have to follow the markets. If you choose a tracker or passive fund it will track the fund benchmark or index
  • Flexible - funds can be held in Stock and shares ISA, SIPPs and Dealing accounts and are exempt from stamp duty

Different types of units or shares

When buying funds you will often see the acronyms ‘Inc’ or ‘Acc’ after the name of the fund which indicate the different classes of funds. You can choose which type of units to buy to suit your investment strategy and time horizon.

An 'income' class class pays out dividends directly into your Dealing account, ISA or SIPP

An 'accumulation' class, rolls up dividends and other forms of income and puts them back into the fund, with the effect of increasing the value of each unit or share held

How to choose a fund

With over 4,000 funds to choose from with us and a vast range of different types of funds it can be daunting to find the right fund to meet your investment objectives. We have created the Favourite funds list which is our picks of the best funds. You can filter the list to help you create a shortlist and easily access the fund factsheets, key investor information document (KIID) and analyst reports to help with your research. The AJ Bell Favourite funds list is not a personal recommendation.

View Favourite funds list

AJ Bell Passive funds – the easy, no-hassle way to access the investment markets

View passive funds

How to invest in funds

It is simple to invest in a fund online. You will need to open an account first and then choose the fund you are interested in investing in. There are over 4,000 funds to choose from but to make it easier for you we have created the AJ Bell Favourite funds list which is our picks of the best funds.

There is a £1.50 dealing charge for buying and selling funds with us and a custody charge for holding the fund. In addition you will pay a charge to the fund which is often called the fund manager's charge. These charges are included in the fund price and can be found on the fund factsheet. To view our costs for dealing and holding funds please .

Save regularly using funds

You can save from £25 per month into a wide range of funds with our regular investment service. You set up the instruction online and we will invest each month for you into the fund of your choice. This is a great way to save regularly and build up your portfolio. For more information please visit our regular investment page.

Why deal in funds with us?

  • Help choosing the right fund for your portfolio with our Favourite funds list
  • Low – cost dealing charge for buying and selling of just £1.50
  • Competitive custody charge for holding funds from 0.25%
  • Wide range of funds available – over 4,000 funds
  • Deal on the go with our mobile dealing app
  • Save regularly from just £25 per month

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