Funds might have different objectives; either to deliver a regular income or capital growth for the investor.
There are three main types of funds to choose from as a private investor: investment funds – also described as unit trusts, mutual fund and open-ended investment companies (OEICs) – investment trusts or companies and exchange traded funds (ETFs).
While all funds have different strategies and aims, there are two broad categories: active and passive.
An active fund manager attempts to outperform the market and competitors by selecting investments on the investors’ behalf. Through constant research and analysis, the fund manager updates the fund’s investments when they believe it is prudent. Over time, they buy and sell various assets depending on market conditions.
A passive fund, sometimes referred to as an index-tracking fund, will try to match the performance of a particular stock market index, sometimes by investing in each stock in the index. The FTSE 100 is an example of a popular index for funds to track. Such funds offer a low-cost uncomplicated method to get exposure to a wide range of investments.