Aggregating resources from numerous investors to maximise potential returns
For individuals with relatively modest investment capabilities, pooled investment funds provide a gateway to a diverse range of asset classes and the advantages of professional fund management. Known as ‘collective investment schemes’, these funds aggregate resources from numerous investors to maximise financial impact and potential returns.
A strategic approach
Pooled investment funds are essentially large portfolios constructed by combining smaller investments from multiple individuals. A professional fund manager, or a team thereof, takes responsibility for selecting and purchasing the assets within these funds. This collective approach allows investors to leverage combined capital to achieve results that might be unattainable on an individual basis.
Offering a variety of investment strategies, such as high income, capital growth, and income combined with growth, these funds cater to a broad spectrum of financial goals and risk appetites. Investors can select a fund that aligns with their personal financial objectives and tolerance for risk.
Types of pooled investment funds
Unit Trusts and Open-Ended Investment Companies (OEICs) are among the most prominent pooled investment funds. These funds pool money from many investors to purchase shares, bonds, property, cash assets, and other investment vehicles, providing a strong foundation for individual investors aiming to realise their financial aspirations.
Investing in an OEIC or a unit trust involves purchasing shares (in an OEIC) or units (in a unit trust). The fund manager amalgamates your capital with that of other investors and allocates it across the fund’s underlying assets. The investments range from British company shares and bonds to international corporate shares and other asset classes.
Ownership and fund performance
As an investor, you possess a share of the overall unit trust or OEIC. The value of your units or shares will correlate with the performance of the underlying assets—rising when asset values increase and falling when they decrease. The fund’s total size will vary as investors buy or sell their holdings.
Funds generally offer options between ‘income units’ or ‘income shares’, which provide regular payouts of dividends or interest, and ‘accumulation units’ or ‘accumulation shares’, where earnings are automatically reinvested to compound growth.
Comprehend the asset types
Investing in pooled funds inherently involves risks. The value of your investments can fluctuate, and there is a possibility of receiving less than the amount initially invested. Different asset classes within these funds carry varying levels of risk, with higher-risk investments potentially offering higher returns. Before investing, it is vital to comprehend the asset types within a fund and ensure they meet your investment objectives, financial situation, and risk tolerance.
Ability to spread risk
One significant advantage of unit trusts and OEICs is the ability to spread risk across a multitude of investments without necessitating substantial individual capital. Most of these funds allow for the sale of shares or units at any time, although some funds may have specific dealing frequencies such as monthly, quarterly, or biannually.
The recommended duration for holding investments depends on your financial aims and the specific assets within your fund. A commitment of five years or longer is advisable for funds invested in shares, bonds, or property. Conversely, money market funds may be more suitable for shorter investment periods. Additionally, shareholding might yield dividends, reflecting the profits the issuing company distributes.