Funds allow investors to pool their money together, which a fund manager will then invest on their behalf. The manager is responsible for choosing investments for the fund and tries to grow investors’ money by spreading it over a range of company shares, bonds etc.
Unit trusts, offshore funds and open-ended investment companies (OEICs) can all be referred to generically as funds.
Exchange Traded Funds (ETFs)
Exchange traded funds are similar to the funds mentioned above except that they act like a share themselves, and are openly traded on a stock exchange such as the FTSE All Share. Most ETFs aim to perform in line with a specific index or commodity (like gold) and often have low management fees.
These are funds registered as public limited companies (PLCs) with their own management teams and boards of directors. They can invest in public and private companies, have a specific number of shares in issue and are traded on a stock exchange themselves.
Companies issue shares to raise money they can use to grow. Buying a share means owning a small part of that company and its future fortunes. While you may not have any control over day-to-day operations, shareholders can profit from a company’s growth.
Bonds and Gilts
Bonds are loans made to companies or governments with you as the lender. You receive regular interest payments throughout the life of the loan and the initial amount is returned to you at the end. Gilts are bonds issued by the British government.