There are hundreds of funds on the market, which makes choosing the right one difficult. Here is a guide to some of the things you should think about.
How much risk do you want to take?
Funds span the risk spectrum and your choice of fund will take into account the level of risk you are prepared to take. The fund's risk profile is usually included in the fund's promotional material. Your investment time horizon is important. Volatile (i.e. risky) products are not normally suitable for short-term investment. While risky investments can deliver excellent returns, it is generally best to have the flexibility to choose the right time to cash in your investment.
For what purpose are you investing?
Think about why you are investing and choose a fund or a market sector that matches your need. In particular, are you investing for income or capital growth?
Do you wish to invest a lump sum or make a regular investment?
Often fund investments will have relatively high minimum investment amounts or relatively high charges for low sums making them more suited to lump-sum investments, e.g. Some CAT standard Mini and Maxi ISAs invest in funds and have low minimum investment requirements allowing regular investment.
How capable is the fund manager?
The investment return of a Managed Fund is dependent on the skill of the fund manager. Although no guarantee for the future, comparing the past performance of your chosen fund against other funds with similar objectives often provides useful guidance. Choose a selection of measurement periods e.g. 1 year, 3 years, 5 years. Look out for funds that have been consistently in the top 25% of their class throughout these periods.
Check that the manager is authorised
The Financial Services Authority (the regulator of the financial markets in the UK) keeps a register of authorised bodies. This can be accessed at www.fsa.gov.uk/register.
Compare charges
High charges mean that the fund has to perform well to beat its competitors. However, lower charges do not necessarily mean the best product. Charges may be levied at the point of investment (initial charges) during the life of the investment (annual charges) and on withdrawal (exit charges). Exit charges can be particularly painful for the unwary and can make withdrawals or switching investments expensive. Some funds' exit charges reduce the longer the investment is held within the fund.
Check for flexibility and fund options
Some providers allow you to switch from one of their funds to another for a relatively low cost. This may be helpful if you wish to retain a certain degree of flexibility.
Insurance-Linked Savings products are complex. If in doubt, click below to speak to an Independent Financial Advisor free of charge.
Tip: Many Stocks & Shares ISAs and Maxi ISAs are investment fund vehicles. Before investing directly, consider buying ISAs to gain from your annual tax free saving allowance. For further information about ISAs click on 'ISA'.
General
AUT's, AIT's and OEIC's
Insurance-Linked Savings
Choosing a Fund
