Pooled investment funds

A gateway to diverse asset classes and strategies

Pooled investment funds offer individuals with relatively small investments an opportunity to participate in various asset classes and benefit from professional fund management. Known as ‘collective investment schemes’, these funds aggregate resources from multiple investors to achieve greater financial impact.

Understanding pooled investment funds
Pooled investment funds are large funds built by aggregating smaller investments from individuals. A professional fund manager, or a team of fund managers, determines the assets to invest in and purchases them accordingly. By pooling resources, investors can collectively achieve greater results than they could individually.
These funds offer diverse investment strategies, including high income, capital growth, and income and growth. This diversity allows investors to choose a fund that aligns with their financial goals and risk tolerance.

Popular types of pooled investment funds:

Unit Trusts and OEICs
Among the popular types of pooled investment funds are Unit Trusts and Open-Ended Investment Companies (OEICs). These professionally managed collective investment funds pool money from many investors to buy shares, bonds, property, cash assets, and other investments. They provide a robust foundation for individual investors seeking to fulfil their financial aspirations.

When you invest in an OEIC or a unit trust, you buy shares (in an OEIC) or units (in a unit trust). The fund manager combines your money with other investors and invests it in the fund’s underlying assets. Each fund invests in a unique mix of investments, ranging from shares in British companies, bonds, and shares of foreign companies, to other types of investments.

The mechanics of buying and selling in pooled funds
As an investor, you own a share of the overall unit trust or OEIC. If the value of the underlying assets in the fund rises, the value of your units or shares will rise. Conversely, if the value of the underlying assets falls, your units or shares will also decrease. The overall fund size will fluctuate as investors buy or sell.

Funds often give investors the choice between ‘income units’ or ‘income shares’ that make regular payouts of any dividends or interest earned by the fund, or ‘accumulation units’ or ‘accumulation shares’, which are automatically reinvested in the fund.

Risk and returns in pooled investment funds
Investing in pooled funds involves risk. The value of your investments can go down and up, and you might get back less than you invested. Some assets are riskier than others, but higher risk also gives you the potential to earn higher returns. Before investing, it’s crucial to understand the kind of assets the fund invests in and whether they align with your investment goals, financial situation, and risk tolerance.

One of the key advantages of unit trusts and OEICs is that they help spread your risk across many investments without requiring a substantial investment. Most unit trusts and OEICs allow you to sell your shares or units at any time, although some funds deal only monthly, quarterly, or twice-yearly.

The importance of investment length
The length of time you should invest depends on your financial goals and what your fund invests in. If it invests in shares, bonds, or property, you should plan to invest for five years or more. Money market funds can be suitable for shorter time frames. Additionally, if you own shares, you might receive income as dividends, a portion of the profits made by the company that issued the shares you’ve invested in.

Pooled investment funds offer an accessible and diverse platform for individuals to grow their wealth. By understanding the mechanics and risks associated with these funds, investors can make informed decisions that align with their long-term financial goals.

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