Funds

Funds are pooled investments, where investors place money to be managed by qualified fund managers. All these smaller amounts of money are added together and invested in a range of assets, usually grouped by a certain theme. This article will explain the different types of funds available to UK investors, with a guide for beginners getting started. We also list the top investment funds.

UK Brokers With Funds

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    Interactive Brokers (IBKR) is a premier brokerage, providing access to 150 markets in 33 countries, along with a suite of comprehensive investment services. With over 40 years of experience, this Nasdaq-listed firm adheres to stringent regulations by the SEC, FCA, CIRO, and SFC, amongst others, and is one of the most trusted brokers for trading around the globe.

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    Interactive Investor are a hugely respected, FCA-regulated investing firm. The trading platform is easy-to-use while the sign-up and deposit process is straightforward for new investors. ii also has a long track record and a string of industry awards under its belt.

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    Trade.com is a trustworthy online broker with a global presence. The broker offers 2,100+ CFDs in major markets, as well as futures, options and more. The broker offers best-in-class platforms and superior analysis tools for experienced traders. The broker is also regulated by top-tier authorities including the FCA and CySEC.

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    Firstrade is a US-headquartered discount broker-dealer with authorization from the SEC. The company is also a member of FINRA/SIPC. With welcome bonuses, powerful tools and apps, plus commission-free trading, Firstrade Securities is a popular online brokerage. It is also quick and easy to open a new account.

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    Swissquote is a Switzerland-based bank and broker that offers online trading and investing. The company has a high safety score and is listed on the Swiss stock exchange. The firm offers a huge range of products, from stocks, ETFs, bonds and futures to 400+ forex and CFD assets. Hundreds of thousands of traders have opened an account with the multi-regulated brokerage. Clients can get started in three easy steps while 24/7 customer support is available to assist new users.

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    Saxo Markets is a multi-award-winning trading brokerage, investment firm and regulated bank. With a huge 72,000+ trading instruments, plus investment products and managed portfolios, clients have no shortage of opportunities. The trusted brand also offers transparent pricing and top-tier regulatory protection from 10+ agencies including FINMA, FCA & ASIC.

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    Zacks Trade is a FINRA-regulated US broker offering trading on stocks, ETFs, cryptocurrencies, bonds and more through a proprietary terminal. The broker is geared toward active traders and offers very affordable fees on most assets as well as an app and a vast amount of market data.

What Are Funds?

Investment funds come in various forms, but all are fundamentally similar products: a range of assets chosen and managed by a professional using a pool of capital from investors.

The investments in a fund usually have a common factor – the fund might cover emerging markets generally or a specific country or region like East Asia; alternatively it could follow an index like the FTSE 100 or a sector such as UK infrastructure. Most funds have investments in at least 30 different assets, but the list can go up to the hundreds. The investors effectively own a part of every asset in the fund.

Since a fund’s value is defined by the overall performance of a basket of assets, they are generally less risky than investing in individual stocks. Any extremes in the basket are balanced by the performance of the other assets.

This, together with the advantage of having a professional firm in charge of investments, make funds a popular choice for investors with long-term goals.

Active Vs Managed

Funds can be actively or passively managed. The difference comes down to whether a manager making active trading decisions to try to outperform the rest of the market. If not, the fund’s performance will usually track an index and it will be counted as passive.

Actively managed investment funds tend to incur higher fees to pay for the services of the fund manager, regardless of the fund’s performance.

Many investors prefer passively managed funds such as index trackers, which simply follow the performance of an index, such as the FTSE 100. Since these indices offer a broad view of a financial market or country’s economy, they can grow over a long enough timeframe and will usually outperform human managers.

There are three main types of traditional funds available to UK investors:

  • Unit trusts – A type of investment fund in which investors’ funds are allocated by a fund manager and the pooled assets are divided into units.
  • Open-Ended Investment Companies (OEICs) – As this type of fund is registered as a company, new shares are created when investors buy in.
  • Investment trusts – These public limited companies (PLCs) seek to profit by investing in other companies, and are traded on the London Stock Exchange (LSE).

One of the most popular alternative types of funds among retail traders in recent years is exchange-traded funds (ETFs). We unpack these in more detail below.

Additionally, investors should note the distinction between income funds, which pay out income generated from dividends and other sources to investors as cash, and accumulation funds, where income is reinvested.

Unit Trusts

Unit trusts are a type of fund where investors’ capital is pooled and invested by a fund manager in bonds or stocks to make a specific return. The value of the pooled assets is divided among investors in units.

Unlike OEICs, which only quote one price, both a bid and ask price are quoted for units. This spread helps protect investors from dilution by new investors buying units or old ones selling them.

When there is a higher demand for units (more buyers than sellers) the price will be quoted on a ‘bid’ basis – the bid will be held at the actual value of the units – and if there are more sellers than buyers the price will be quoted on an ‘offer’ basis – the offer will be at the actual value of the underlying units.

Since unit trusts are open-ended, new units are formed and underlying assets are bought to satisfy the new units created with new investment. If investors start to sell in numbers, that is ‘redeeming’ their units, the fund will have to sell some of its investments and cancel units.

Investors in unit trusts are often charged extra to make their first investment, and this charge can be as high as 5–6%, particularly if a commission is due to the financial advisor who recommended the fund. However, if the investor invests through a fund supermarket or discount broker, this charge could be as low as zero.

Management charges will continue to be levied throughout the investment’s lifespan, and these are paid by the cancellation of units. These charges can be from 0.5% for index tracker funds to 2.5%.

These management charges include transaction fees, audit fees, and annual management fees, and are payable each year whether or not the fund makes a profit.

OEICs

Like unit trusts, OEICs pool investors’ money and allocate it to a range of assets across a specific sector or market. They are also open-ended funds that create new shares to meet the demand of new investors and cancel shares when investors leave.

Prices for both unit trusts and OEICs are normally calculated once per day, and this is the price at which all requested trades are executed. There will be a cut-off time for orders to be given to the fund manager for execution (so that he can amalgamate and net off buys and sells), which means that some orders won’t be executed until the following dealing day.

OEICs are priced differently to unit trusts, with just a single price quoted and initial charges levied separately. The other most significant difference between the two is that OEICs are companies listed on the London Stock Exchange, and thus governed by company law as opposed to trust law. This means that OEIC shareholders own the underlying assets the fund invests in, whereas technically, unit trust investors do not.

Investment Trusts

Investment trusts are companies whose shares are quoted on a stock exchange. Shares are issued to raise money, and then that money is used to invest. Whereas some companies might manufacture white goods, others sell banking services, etc. investment trusts make money by investing in the shares of other companies.

Because they operate like any other company, investment trusts can borrow money or issue new shares to raise money to invest.

They have a set number of shares in existence, and, unlike OEICs and unit trusts, can’t create new shares to satisfy investor demand. The price of investment trust shares will fluctuate with supply and demand. When more investors want to buy the shares, the share price will rise.

However, unlike the shares of other publicly quoted companies, the real value of investment trust shares can be easily calculated at any moment by adding up the value of all its holdings and then dividing by the number of shares of the investment trust. The sum of this calculation gives the Net Asset Value (NAV) per share.

Buying the shares of an investment trust does not incur the charges that buying units in an OEIC or units trust does, but there will be a spread between the buying and selling prices, as well as a broker’s commission and stamp duty on the purchase value. Annual management fees are payable by the investment trust, though this is usually offset by income received on its investments.

ETFs

Exchange-traded funds are a type of investment instrument that has increased in popularity in recent years – climbing from $1.35 trillion worldwide in 2011 to nearly $10 trillion in 2022.

While some ETFs are actively managed by investment professionals, they are usually passive instruments that simply track the performance of a group of assets.

ETFs usually track the performance of a specific market, sector, country or another grouping, and to do this they might invest in hundreds or even thousands of securities. Some of the most popular ETFs track the performance of major indices, such as the S&P 500.

To do so, they would either invest a weighted amount in all of the securities included in the index, or invest in a selection of assets that provide a balanced overall picture of the index’s performance.

Passive ETFs usually have low fees and pay dividends. Investment trusts can outshine ETFs on both counts, but they also tend to be more volatile compared to low-risk ETFs on offer.

Shares in ETFs are traded on stock exchanges, meaning that you can buy and sell them multiple times per day, unlike unit trusts and OEICs. This also allows traders to use different investment vehicles to trade ETFs, whose price movements can be speculated upon through contracts for difference (CFDs), for example.

ETFs that track a particular index work in almost the same way as index tracker funds. However, since ETFs are traded on stock exchanges, you will normally be subject to share dealing fees when you buy and sell them, unlike index trackers.

ETF Brokers UK

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    AvaTrade is a leading forex and CFD broker, established in 2006 and regulated across 9 jurisdictions. Over 400,000 users have signed up with the broker which processes over 2 million trades each month. The firm offers multiple trading platforms, including MT4, MT5, and a proprietary WebTrader. 1250+ financial instruments are available for trading, from CFDs to AvaOptions and now AvaFutures, alongside a comprehensive education center and multilingual customer support.

  2. XTB

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    Founded in 2002 in Poland, XTB now serves more than 935,000 clients. The forex and CFD broker combines a heavily regulated trading environment with an extensive selection of 5,600+ assets and a commitment to trader satisfaction, featuring an intuitive in-house platform with superb tools to support aspiring traders.

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    Established in 1989, CMC Markets is a respected broker listed on the London Stock Exchange and authorized by several tier-one regulators, including the FCA, ASIC and CIRO. More than 1 million traders from around the world have signed up with the multi-award winning brokerage.

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    Spreadex is an FCA-regulated broker that offers spread betting opportunities on an impressive 10,000+ CFD instruments including 60 forex pairs. Traders can also take short-term positions on sporting events. The brand has been around for over 20 years and has won multiple awards.

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    IC Markets is a globally recognized forex and CFD broker known for its excellent pricing, comprehensive range of trading instruments, and premium trading technology. Founded in 2007 and headquartered in Australia, the brokerage is regulated by the ASIC, CySEC and FSA, and has attracted more than 180,000 clients from over 200 countries.

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    Established in Australia in 2010, Pepperstone is a top-rated forex and CFD broker with over 400,000 clients worldwide. It offers access to 1,300+ instruments on leading platforms MT4, MT5, cTrader and TradingView, maintaining low, transparent fees. Pepperstone is also regulated by trusted authorities like the FCA, ASIC, and CySEC, ensuring a secure environment for traders at all levels.

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    Interactive Brokers (IBKR) is a premier brokerage, providing access to 150 markets in 33 countries, along with a suite of comprehensive investment services. With over 40 years of experience, this Nasdaq-listed firm adheres to stringent regulations by the SEC, FCA, CIRO, and SFC, amongst others, and is one of the most trusted brokers for trading around the globe.

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    RoboForex is an online broker, established in 2009 and registered with the IFSC in Belize. Traders can choose from five accounts (Prime, ECN, R StocksTrader, ProCent, Pro) catering to different needs with trades from 0.01 lots and spreads from 0 pips. RoboForex has also enhanced its offering over the years, adding CFD instruments and launching its stock trading platform, plus the CopyFX system.

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    eToro is a top-rated multi-asset platform which offers trading services in thousands of CFDs, stocks and cryptoassets. Launched in 2007, the brand has millions of active traders globally and is authorized by tier one regulators, including the FCA and CySEC. The brand is particularly popular for its comprehensive social trading platform. Cryptoasset investing is highly volatile and unregulated in the UK and some EU countries. No consumer protection. Tax on profits may apply. 51% of retail CFD accounts lose money.

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    InstaForex is a forex and CFD broker founded in 2007. The broker offers diverse market coverage to millions of clients, spanning traditional assets like currencies and shares, as well as other interesting opportunities such as IPOs.

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    Interactive Investor are a hugely respected, FCA-regulated investing firm. The trading platform is easy-to-use while the sign-up and deposit process is straightforward for new investors. ii also has a long track record and a string of industry awards under its belt.

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    Founded in 1974, IG is part of IG Group Holdings Plc, a publicly traded (LSE: IGG) brokerage. The brand offers spread betting, CFD and forex trading across an almost unrivalled selection of 17,000+ markets, with a range of user-friendly platforms and investing apps. For 50 years, IG has maintained its position as an industry leader, excelling in all key areas for traders.

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    Founded in 2009, Vantage offers trading on 1000+ short-term CFD products to over 900,000 clients. You can trade Forex CFDs from 0.0 pips on the RAW account through TradingView, MT4 or MT5. Vantage is ASIC-regulated and client funds are segregated. Copy traders will also appreciate the range of social trading tools.

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    Established in 2008 and headquartered in Israel, Plus500 is a prominent brokerage that boasts over 25 million registered traders in over 50 countries. Specializing in CFD trading, the company offers an intuitive, proprietary platform and mobile app. It maintains competitive spreads and does not charge commissions or deposit or withdrawal fees. Plus500 also continues to shine as one of the most trusted brokers with licenses from reputable regulators, including the FCA, ASIC and CySEC.

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    GO Markets is an established forex and CFD broker with multiple industry awards and accolades. The ECN/STP broker is popular with budding traders, offering competitive accounts in multiple base currencies and a range of flexible payment methods. With top-tier regulation from CySEC and ASIC, GO Markets is a trusted broker.

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    Markets.com is a respected broker, offering multi-asset trading opportunities through CFDs or spread betting (UK only). Established in 2008, the brand has an impressive 4.3 million registered customers and is overseen by trusted regulators, including the FCA, ASIC and CySEC. 79.1% of retail accounts lose money.

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    Founded in 2015, VT Markets maintains its position as a top Australian multi-asset CFD broker. With 1000+ tradeable instruments and support for the MetaTrader 4 and MetaTrader 5 platforms, this broker delivers a wide range of trading opportunities to over 200,000 clients worldwide. VT Markets is regulated by the ASIC, FSCA, and SVGFSA.

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    Webull is a multi-regulated trading app that offers stocks, options, forex, cryptos, ETFs, fractional shares and more. The firm is authorized by the SEC, FINRA and FCA and continues to uphold a strong trust rating. Low fees, no minimum investment and generous welcome bonuses have made the discount broker popular with online investors.

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    Trade.com is a trustworthy online broker with a global presence. The broker offers 2,100+ CFDs in major markets, as well as futures, options and more. The broker offers best-in-class platforms and superior analysis tools for experienced traders. The broker is also regulated by top-tier authorities including the FCA and CySEC.

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    Grand Capital is a MetaTrader broker with welcome bonuses, trading competitions and an intuitive copy trading service. Several account types and 400+ assets provide trading opportunities for various types of investors and strategies. New users can also open an account and start trading in a matter of minutes.

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    Ingot Brokers is a multi-regulated brokerage established in 2006. The broker offers CFD trading opportunities on 1000+ instruments including forex, stocks, indices, commodities and cryptocurrencies. The broker supports the MetaTrader 4 and MetaTrader 5 platforms and offers both raw spreads and commission-free account options.

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    Scope Markets offers trading and investing in multiple spot and CFD instruments. The group of brokers is regulated in several locations, including Belize, Kenya and South Africa. Users get competitive trading conditions, a range of payment methods, strong support and can get started in a few straightforward steps.

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    Dukascopy is an online broker operated by a Swiss-regulated banking group. It offers a good selection of 500+ markets, with forex, stocks, gold, ETFs, indices, bonds and cryptocurrencies available. It also offers flexible trading opportunities through the choice of CFDs or binary options. Traders will use MetaTrader 4 or a proprietary platform that is well-suited to automated trading.

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    RockGlobal is a New Zealand based and regulated CFD broker. They offer competitive spreads from 0.1 pips and a large range of trading assets, trading platforms and educational services, with up to 1:500 leverage. Operating in a Tier 1 regulated environment, RockGlobal offers peace of mind and excellent customer support.

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    Firstrade is a US-headquartered discount broker-dealer with authorization from the SEC. The company is also a member of FINRA/SIPC. With welcome bonuses, powerful tools and apps, plus commission-free trading, Firstrade Securities is a popular online brokerage. It is also quick and easy to open a new account.

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    Switch Markets is a multi-asset CFD brokerage, regulated by ASIC and SVGFSA. The new brand offers trading on the MT4 and MT5 platforms and leverage up to 1:500. The broker boasts over 2000+ instruments, with some additional tools including copy trading services and free VPS hosting.

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    Kucoin is a crypto exchange that offers trading on 1000+ tokens as well as leveraged trading opportunities via futures and perpetual swaps. This exchange has a slick trading platform that supports robots, allowing traders to implement automated strategies. Other attractive features include a demo account, flexible funding methods and DeFi features like staking and mining.

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    Pacific Union Prime is an FSCA and offshore-regulated multi-asset broker offering competitive fees and direct market access on forex, commodities, stocks, bonds and indices. The broker supports the popular MetaTrader 4 and MetaTrader 5 platforms and a proprietary mobile app. Fees vary by account type with no commission and spreads from 1.9 pips on the Standard account and $7 commission per lot and spreads from 0.4 pips on the Prime account.

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    ActivTrades is a UK-headquartered CFD and forex broker established in 2001. The brokerage is heavily regulated with licenses from the FCA, SCB, CSSF, BACEN & CVM and CMVM. Over 1000 CFDs are available spanning 7 asset classes. Over 93.60% of orders are executed at the requested price. ActivTraders also offers a selection of leading trading platforms, including MT4, MT5, TradingView and ActivTrader platforms.

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    Swissquote is a Switzerland-based bank and broker that offers online trading and investing. The company has a high safety score and is listed on the Swiss stock exchange. The firm offers a huge range of products, from stocks, ETFs, bonds and futures to 400+ forex and CFD assets. Hundreds of thousands of traders have opened an account with the multi-regulated brokerage. Clients can get started in three easy steps while 24/7 customer support is available to assist new users.

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    Fortrade is a multi-asset, multi-regulated broker with branches regulated by the FCA, CySEC and ASIC among others. The brand offers trading opportunities on a wide range of instruments including stocks, bonds, commodities, forex, indices, cryptocurrencies and ETFs, with competitive fees and support for MetaTrader 4 and a proprietary platform.

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    Established in 2005 in Australia, FP Markets is an ASIC- and CySEC-regulated broker boasting an extensive suite of tradable assets. Its Standard and Raw accounts cater to traders at every level, while it packs a punch in the tooling department, from the MetaTrader suite and intuitive TradingView to actionable trading ideas from Trading Central and AutoChartist.

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    Admirals is a multi-regulated broker with an excellent range of leveraged instruments, including forex, stocks, indices, ETFs, commodities, cryptos and more. The broker supports the MetaTrader 4, MetaTrader 5 and TradingCentral platforms. With both spread betting and CFDs available and thousands of instruments, this broker provides more flexibility than most rivals.

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    Libertex is a well-known broker, established in 2012. The regulated brand has served numerous clients and is regulated by the Cyprus Securities and Exchange Commission with license number 164/12. Libertex offers CFD trading on 250+ underlying assets, including through an innovative and user-friendly proprietary web trader platform. Choose between CFDs on forex, cryptocurrencies, commodities, stocks, indices and ETFs, which are available with tight spreads and low commissions.

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    HYCM is an online broker with authorization from four international bodies including the FCA and CySEC. The broker offers short-term CFD trading on forex, shares, commodities, indices, ETFs and Bitcoin, and supports the MT4 and MT5 platforms, as well as Trading Central analysis.

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    FXOpen is a multi-asset broker with regulation from several trustworthy bodies including the UK's FCA. The broker offers CFD trading on forex, stocks, commodities, indices, cryptocurrencies and ETFs via the MetaTrader 4 & 5 and TradingView platforms.

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    Saxo Markets is a multi-award-winning trading brokerage, investment firm and regulated bank. With a huge 72,000+ trading instruments, plus investment products and managed portfolios, clients have no shortage of opportunities. The trusted brand also offers transparent pricing and top-tier regulatory protection from 10+ agencies including FINMA, FCA & ASIC.

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    Zacks Trade is a FINRA-regulated US broker offering trading on stocks, ETFs, cryptocurrencies, bonds and more through a proprietary terminal. The broker is geared toward active traders and offers very affordable fees on most assets as well as an app and a vast amount of market data.

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    Just2Trade is a reliable multi-regulated broker registered with FINRA, NFA and CySEC. The company has 155,000 clients from 130 countries and stands out for its huge suite of instruments and additional features, including a social network, robo advisors and a funded trader programme.

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    FXCentrum is an offshore broker that offers highly leveraged, commission-free trading on diverse instruments with tight spreads. Traders can access forex, equity and commodities markets via MetaTrader 5 or the proprietary FXC platform and use the award-winning ZuluTrade platform for copy trading.

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    Capital.com offer CFDs on a range of markets with competitive spreads and zero commissions. The broker also offers the Investmate app, negative balance protection and leveraged trading.

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    Trading 212 is a European and UK-regulated CFD broker that also offers stock investing and ISAs. It’s best known for its commission-free trading model and beginner-friendly app, which has helped it attract 2.5 million users and £3.5 billion in client assets.

Mutual Funds Vs ETFs

It is widely said that an ETF behaves like a mutual fund, but can be traded like a stock. If an ETF behaves like a mutual fund, are there really any differences or similarities between ETFs and mutual funds?

Similarities

There are some areas of similarity between ETFs and mutual funds. These can be summarised as follows:

Transaction Costs

In terms of transaction costs, ETFs and mutual funds provide some of the cheapest ways of transacting in the financial markets. Transaction costs for these two assets are lower than if the trader were to be investing in the traditional stock, commodities or forex markets.

Assets Traded

ETFs and mutual funds both provide avenues for investors who want to invest in multiple securities or assets from one investment vehicle. This can be achieved with exchange-traded funds as well as mutual funds.

Retirement Investing

Leveraged ETFs can be used for retirement investing as this ETF type employs less volatile assets as the majority constituent of its asset basket. Mutual funds are also suitable for retirement investing as they are by their very nature, required to invest in less volatile assets that produce steadier returns.

Differences

Even though ETFs are similar to mutual funds in a few ways, there are also some differences in the mechanics of both investment vehicles. Some of these differences are subtle, while other differences are quite huge.

Mechanism Of Trading

This is where a big gulf exists between the two. ETFs are traded like stocks, meaning that they can be traded by either taking a long position or short-selling them. In addition, ETFs are traded in such a way that they mirror the performance of the basket of securities that they are trading and not in an attempt to outperform them.

Mutual funds, especially actively managed mutual funds, are managed in such a way as to outperform the indexes that they are tracking.

Another difference between ETFs and mutual funds in terms of the mechanics of trading has to do with pricing. ETFs can be bought and sold at the prevailing market prices, or a different price than the market price using pending orders, just the way a stock is bought and sold.

Mutual funds can only be purchased at the closing price of the day. So this means that ETF traders have more flexibility in terms of pricing, as they can take advantage of the intraday price movements of the ETF they are purchasing or short selling to get them at prices that they find cheaper to their portfolio.

A mutual fund trader does not have such privileges. Even if the price of the mutual fund asset assumes a cheaper dimension during the day, that trader must wait for the day’s trading to close before he can purchase at the closing price.

Taxation

Mutual fund investors are typically expected to pay capital gains tax on their investments. This is usually a result of the system of rebalancing portfolios with mutual funds.

ETF portfolios are rebalanced differently. When adjusting the weight of the components of the ETF, no sale of the security actually occurs, so there is nothing to tax.

This is not to say that when the ETF is sold, the trader does not pay capital gains tax. What we are saying here is that there are fewer taxable occurrences with an ETF portfolio than there are with a mutual fund portfolio, so ETF investors get to pay less tax than mutual fund investors.

Trade Process

Since ETFs are often contract-for-difference instruments, traders are allowed to buy any number of units that they want, in conformity with the leverage and margin requirements of the ETF account. Mutual fund investors have to buy preset minimums as stipulated by their fund providers.

Transparency Of Reporting

Mutual funds are only obligated to report their facts and figures as pertains to their business every quarter, or 4 times a year. In contrast, ETF brokers are required to make daily reports of the transactions that have occurred on their accounts. This provides better transparency of reporting for ETFs than mutual funds, and enables traders to take decisions faster on what to do with their portfolios and what adjustments need to be made.

Investment Profile

Mutual funds are by the nature of their design, intended to be less speculative instruments. ETF CFDs are traded daily on the exchanges and have a more risky profile because of the potential for speculation.

ETFs and mutual funds provide excellent methods of investing in the financial markets, but a trader has to weigh his personal circumstances against the inherent nature of these two investment vehicles to decide which will serve him better.

Why Invest In A Fund?

Investment funds are popular among UK investors as they tend to be lower risk and lower effort than investing in single stocks, and they provide portfolio diversification.

Funds are usually long-term investments, and investors are sometimes advised to allow five years or more to make a decent return. This doesn’t mean you will need to wait that long to cash in and profit, but you should bear in mind that funds’ timeframes tend toward the longer term.

Since funds are usually based on a specific theme, they can be a good way to gain exposure to a certain sector or region without having to conduct deep research on the assets available. If you want to invest in natural resources, for example, you can simply research the funds available and pick one that you feel is well managed and performing well, rather than researching individual mining firms.

This also allows investors to access foreign stock markets without having to sign up with specific stockbrokers or go through complicated bureaucratic processes. A fund specialising in South East Asia will include numerous companies’ stocks that may not be easily accessible to an individual investor from the UK.

How To Choose A Fund

UK investors have thousands of funds to choose from. Consider these areas when taking your pick:

Availability

Not all investments funds are offered by every broker or trading platform. This narrows your choices down, particularly if you are investing in a stocks & shares ISA, where the assets available can be limited. If you want to invest in a specific fund, you will need to sign up for a provider that offers it.

Fortunately, the best brokers with funds, such as Degiro, have a straightforward search and filter function so users can find popular investment funds.

Finding funds on Degiro platform

Degiro – Investment Fund Examples

Purpose Of Investing

Different funds will suit different purposes in an investment portfolio. If you want to put together investments that will appreciate over time to save for retirement or a specific purpose, you can look at accumulation funds with the potential for high growth. Investors seeking passive income can look for high-yield funds.

Funds in commodities such as precious metals can work well for hedging purposes, or investors could pick up an ETF which takes a short position on an index, such as the ProShares Ultra Short SQQQ.

Historic Performance

Even if past performance is no guarantee of future results, it is still a good idea to check how a fund has been performing before you invest. It may be better to avoid funds that have been underperforming for a long time as this could indicate issues with the management.

Management

The management of an active fund is the key feature that sets it apart from similar investing instruments.

A well-managed fund can outperform the market, so look for options that are helmed by highly rated professionals with strong track records.

Fees

Whichever fund you invest in will be subject to fees, but the amount you pay can vary, usually depending on how actively the fund is managed.

Some funds include a higher fee for the first investment, followed by a smaller percentage cut from any future investments you make in the fund. Many also charge a yearly management fee.

Note that unit trusts are subject to a bid and ask spread, which is effectively an additional charge when the investor sells.

Besides fees associated with the fund itself, investors will also usually need to pay charges to the broker or investment platform they use for trading.

How To Start Investing In Funds

UK investors can get started with funds by following a few simple steps:

  1. Choose A Platform – Units or shares of funds are purchased through investment platforms provided by banks or established firms like Vanguard and Fidelity, while ETFs can be bought through brokers such as Pepperstone or XTB. Choose one that fits your investment goals.
  2. Sign Up – You will need to complete an application form and provide identification verification and proof of address to sign up for most investment platforms and brokers in the UK.
  3. Deposit Funds – Deposit enough cash in your account to purchase units or shares in all of your preferred funds. Most fund brokers will have a minimum deposit requirement.
  4. Research Investment Funds – Choose the funds that meet your investment goals. A good investment portfolio could include several funds to cover various sectors.
  5. Place An Order – You can split a lump sum between several investment funds or set up a recurring purchase on some platforms.

Taxes

Most funds are subject to taxes in the UK, so investors may have to pay capital gains and dividend taxes if their earnings exceed the yearly limits.

However, capital gains taxes can be avoided by investing in funds through a stocks & shares ISA (up to the £20k annual limit)

Trading US-Listed Funds

Although UK investors can buy stocks listed on US or other foreign exchanges, UK regulations prohibit the sale of US ETFs in the UK.

Fortunately, many of the most popular US ETFs have equivalents available on UK exchanges. For example, you can use the iShares Nasdaq 100 UCITS ETF to track the Nasdaq 100 in the same way as you would with the US ETF.

Alternatively, UK investors can get around the regulations by trading the US ETFs through derivative products like CFDs. These are not prohibited as they do not involve buying the underlying assets.

Bottom Line On Investment Funds

Most investors neither have the time, the experience, nor the inclination, to actively manage their investments on a day-to-day basis. Although researching the stock market and selecting stocks to buy and sell can be a rewarding process, many prefer to leave it to professionals and invest in the stock market or other assets by investing in funds. Ultimately, they can be less risky and require less effort than investing in individual stocks and assets.

FAQ

How Do You Invest In A Fund?

Most investors buy and sell units and shares in funds through an investing platform. These are provided by established investment firms such as Fidelity or Vanguard. Many banks also provide platforms to trade funds, including stocks & shares ISAs, which are among the most popular and cost-effective methods.

You will find even more options available if you want to trade ETFs, as these can be bought and sold through brokers or traded using derivative products like CFDs and spread betting.

Should I Invest In Funds?

Some UK investors prefer to invest in funds, as these are a straightforward way to gain diverse exposure to markets and are considered low-risk compared to trading individual stocks. Many people use investment funds to save money throughout their lifetime, and they can also make up the foundation of a pension pot.

Since investment funds come in accumulation and income varieties, you can use them to grow your wealth over the long term, or they can provide a regular flow of passive income.

Can I Buy US Funds In The UK?

UK legal rules prohibit the sale of US ETFs, but most major US-listed ETFs have equivalents to trade on the UK stock market. Alternatively, you can trade US ETFs using derivatives like CFDs and spread bets, since these do not involve owning the underlying assets.

What Is The Best Fund To Invest In The UK?

There are thousands of funds to choose from in the UK, and each will be aimed at a specific niche. Some of the most popular funds are index trackers, as these are considered to be lower risk and usually perform well over a long timeframe. Some investors will also put money in actively managed funds in the hope of outperforming the wider market, though this is not always the case.

Is It Better To Invest In A Stock Or A Fund?

Investment funds and stocks perform in different ways and serve different purposes. Broadly speaking, a stock will be more volatile than a fund, with more potential for growth but also the chance of a bigger dip in value. Since funds consist of a group of investments, some of the volatility is balanced out and investors are protected, to an extent, from market events that could leave individual companies bankrupt. However, the lower risk is also likely to bring less reward.

Since there is no clear answer on which is ‘best’, many investors prefer to invest in a combination of funds and individual stocks.

Article Sources

UK investment fund data – The Investment Association

Regulated fund data – Statista

Blackrock investment fund list

Further Reading