Funds and investing in funds

The first thing to understand about funds is that, whilst they may seem very complicated, there is nothing that is beyond comprehesion once things are explained simply. The first thing to say is that there are various different types of funds, and they have different names.

Ones that you would typically come across are things like unit trusts and something called open-ended investment companies: usually described in the impenetrible financial jargon that abounds as OEICs. These are simply a common investment portfolio between many people (the investors) who pool their individual money together into the one combined entity: the aforementioned fund.

Open-ended funds like these are contrasted from closed-ended funds, explained in another article. The reason they are called open-ended is simply, and refers to how many units are in the fund: this goes up and down with the amount invested, it is therefore open-ended. The price of those units is in a very simple relationship with the value of the investments that form that fund: if they go up, the value of the units goes up, and likewise down leads to down. So it's all actually quite straightforward.

Funds would typically be brought as an individual through a broker or financial adviser of some kind, and so there will be charges and/or commission to take into account; people may choose to invest a one off larger sum (lump sum) or regular payments of a smaller amount. Funds will have some sort of annual management fee payable and this may veyy depending on how much effort and work is needed to maintain the fund, depending to some extent on its individual make-up.

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