If you are unsure or want advice then make sure you seek professional and independent advice from a financial adviser before investing any money.

Decide what you want from your investment

Most funds will openly state their investment aims and philosophy; this means you can see both what they hope to achieve from their investment strategy and what type of investor they are looking for.

Some funds want to attract people who:

  • Are happy to invest for a long period without drawing an income.

  • Want to and draw a steady income each month or quarter.

  • Are willing to accept greater risk in return for a chance at the biggest capital gain possible.

  • Want to make more secure investments with less risk to their capital.

  • Want to generate an income but gives you the option to re-invest your profits back into the fund, compounding your total stake.

Deciding exactly what you want from your investment should help you eliminate a large swath of investment funds that are not targeted to your needs.

Pick how much risk you want

Most investment funds will pose some risk to your initial capital, and as a result you are not guaranteed to get back what you put in.

It is for this reason that investments should be considered as a long term strategy, rather than a place to hold your money in the short term. In theory any extreme fluctuations in value should even out over the longer term.

Your attitude to risk should determine not only what type of fund you invest in, but whether you even invest at all.

You also need to:

  • Decide how much risk you can afford to take with your capital before you start looking at funds.

  • Consider what the money you are investing is to be used for in the long term.

Monthly investment or lump sum?

  • Investing a lump sum will mean your capital is immediately subjected to the rise and fall of the fund's fluctuating value. If the fund performs well you'll immediately start benefiting, however if it performs poorly your entire capital will be at risk from the offset.

  • Saving on a monthly basis, especially into a unit trust or OEIC fund, can help reduce the risk your capital is exposed to. If the value of the fund drops you will be able to purchase more units for your money, however, if the fund increases in value it would also mean you get few units for your cash.

The amount you want to save may also have implications on your choice, most investments specify a minimum opening and monthly deposit.

These can vary significantly but usually start from 25-50 per month and a lump sum deposit of 500.

Active or passively managed?

There are two main types of investment funds, those that are actively managed and those that are passively managed.

An actively managed fund is constantly monitored by a fund manager who chooses which companies to buy and sell shares in.

A passively managed fund will try and replicate the movement an existing market or index by investing across the market so as to track its rise and fall. In this case the fund manager doesn't make investment decision but buys and sells shares to reflect then index.

You'll need to decide whether you have a preference for actively or passively managed funds before you start narrowing down your options.

Pick an asset class

To give you an idea of your options, here are some of the most common types of investment funds:

If you are unsure what type of fund to go for you can choose to invest in a balanced or diversified funds which spreads its money across several different asset classes.

Choose a market

All funds specialise in a strategic investment areas, which can be as diverse as the US property market to Chinese telecommunications.

You may want to invest in a certain market for a number of reasons, such as:

  • You want to support small UK businesses

  • You want to invest in manufacturing or the communications industry for your political views

  • You want to chose ethical funds which develop green and fair trade businesses

  • You may feel that a certain sector of the economy is set to do well over the coming months and years

Alternatively you can choose a fund that diversifies its investments and spreads your money across a number of different market areas.

While it's by no means a faultless strategy, choosing a fund that invests in an area or market you are knowledgeable about or interested in can be a good idea.

This way you're more likely to pick up on positive or negative trends within the industry and so better able to tailor your investment accordingly.


What area should you invest in?


Most investment companies now operate funds that invest in specific locations across the globe, although you can also get ones which invest across numerous regions.

Traditionally emerging markets such as Asia and South America are seen as more high risk for UK investors, compared to the more established UK and US markets.

Choose the fund

There are several factors to each fund that you should consider before investing, including the size of the fund, its volatility and investment track record.

ISA wrapper

You should seriously consider opting for a fund that can be protected as an ISA to avoid paying tax on your profits.

Not all funds will allow you to invest via an ISA so this is something worth checking if you want to use your ISA allowance.

Performance history

Every fund displays the growth in percentages for the last 1-5 years, sometimes longer.

Checking past performance shows you the size of previous returns to investors.

Also check the yield rates of the various funds on offer. This measures how much money each fund makes through dividend payments from the shares and investments it holds.


The volatility of a fund is based upon a standard deviation model and tells you how consistent the fund has been each year.

The greater the volatility the more chance you have of seeing big changes in your return each year.

Checking the volatility score and track record of a fund will give you an idea of how it has performed in the past, it provides no guarantee for future performance.

Check out the manager

The fund manager is the person who decides the fate of your money, so make sure you find out:

  • How long they've managed the fund you are considering investing in

  • How it's performed under their tenure in charge

You should easily be able to find their previous investment record online to see how the funds they have managed have performed in the past, although this is no guarantee of future success.

The most telling data about a fund manager is not his or her profit margins year on year, but the performance of funds they've managed versus those managed by their peers investing in a similar market.

Check the fees

The amount of fees charged can vary due to a fund being either actively or passively managed, there is still some variation between funds of the same type.

Actively and passively managed fees

The fees associated with an actively managed fund will be greater than for passive funds.

This is because the fund manager and his support team are constantly managing the investment portfolio and buying and selling the fund's shares to try and maximise your profit.

This means that less of your investment is used to buy shares through the fund, although this should be outweighed by the benefits of having a fund manager dedicated to maximising profits.

Deposit linked fees

Fees are usually split between transaction/deposit fees and annual management fees.

  • Initial deposit fees are only paid once when you first invest your money in a fund - these are usually in the region of 5%.

  • Annual fees normally vary between 0.5% and 2% and are paid once a year to cover the cost of managing the fund.

Before you invest you should check exactly what you'll be expected to pay, these fees can be found using our investment comparison tables.