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Danimation: the three different types of fund you can buy

Welcome to the second episode of Danimation, our series in which a cartoon reimagining of editor Daniel Grote explains the basics of investing in funds. 

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Read the transcript

There are three main types of investment fund for UK investors.

The first were investment trusts. They date back to the 19th century when investors clubbed together to finance the construction of the US railways.

Today there are nearly 400 investment trusts listed on the London Stock Exchange looking after £170 billion  of investors’ money.

After the Second World War a new collective investment scheme emerged called unit trusts. They issued units rather than shares. Similar sorts of funds called open ended investment companies, or Oeics for short, launched in 1997.

These funds grew quickly and have become the dominant form of collective investing in the UK.

The Investment Association, the trade body for the managers who run these funds, lists 3,585 different funds in the 36 sectors it groups them in. Together, these funds house £1.2 trillion of assets.

And there even more available to UK investors. A total of 8,283 of these funds are registered for sale in the UK.

Most of these funds are run by active managers, who are picking the investments they think will do best.

But some are what are called ‘passive’ funds. These simply try and track the performance of an index, like the FTSE 100, rather than try and beat it, and tend to have lower charges. Unit trusts and Oeics that adopt this approach are often called ‘tracker’ funds.

The rise of ‘passive’ investing has produced a third type of fund, exchange-traded funds. They operate in a similar way to tracker funds, but allow investors faster access, appealing to those who want to move quickly in and out of markets.

They have proved very popular with over £3 trillion invested in them across the world.

In the next episode, I’ll explain more about what makes the three types of fund different from each other. See you soon!

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