The Basic Guide to Funds

What is a fund?

Funds offer an easy and convenient way to invest, and are a popular choice of investment for novice and experienced investors alike. They offer an easy way of diversifying across a number of different investments, and access to the skills of a professional fund manager.

A fund pools together the money of lots of different investors, and a fund manager invest on their behalf. Funds can invest in various types of asset such as shares, property, or bonds, depending on the investment objective of the fund.

With a professional fund manager making the investment decisions, investing in funds takes away much of the pressure of choosing and managing your own investments. For many, this will justify the fee that the fund manager charges for their services.

If you invest with a fund manager who chooses assets that perform well, the value of your investments will increase in value over time. On the other hand, always remember that investments can fall as well as rise in value so you could get back less than you invest.

While all investors ultimately seek to grow their wealth, there are a number of different ways to achieve this goal. This means there are many different types of fund available. Some will invest in a broad range of assets across many different countries, while others may invest in one particular asset type, or have a specific geographic focus.

An example of an asset allocation fund

Different Types of Funds

Funds can be broadly grouped into actively managed or passively managed. Let’s look at the actively managed funds first.

Actively managed funds

As the name suggests, the manager actively chooses the underlying investments held in the fund on the investors’ behalf, aiming to outperform the market and their peers. The fund manager will continually undertake research and analysis, and then update the investments in the fund when they feel it necessary. This means that over time, they will buy and sell different assets depending on market conditions.

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Passive funds (also known as index tracking funds)

These funds aim to match the performance of a particular stock market index – often by simply investing in every share in the index being tracked. The FTSE 100 (a list of the 100 biggest companies in the UK) is an example of a commonly followed index. These funds can offer a convenient, low-cost way to gain exposure to a broad range of investments.

Another main difference between active and passive fund management is the fees charged. As they require less day-to-day management, passive funds usually have lower ongoing charges. With actively managed funds, the extra work and analysis involved means investors generally have to pay more in the way of charges, although having your money with a good fund manager can justify this extra cost.

Income vs accumulation 

Many funds, both active and passive, give investors the choice between investing in either income or accumulation units. The difference is how the income generated by the investments in the fund is treated.

For example, if a fund is invested in shares, these shares will often pay dividends and thus generate an income. The income version of a fund will distribute these dividends to investors as cash. With the accumulation version, the fund manager instead uses the cash to buy more shares, increasing the value of each unit in the fund.

Those investing with the aim of generating an income should choose income units. Those looking for long-term growth in their investment will probably wish to choose accumulation units.

What are UCITS Funds?

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UCITS (Undertakings for Collective Investment in Transferable Securities) are investment funds regulated by the European Union. They are perceived as safe and well-regulated investments and are very popular in Europe, South America and Asia among investors who prefer not to invest in a single public limited company but rather among diversified unit trusts spread out within the European Union.

Types of UCITS Funds 

There are a plethora of UCITS Funds available in the market for you to choose from. This includes, MMFs (money market funds), bond funds, ETF (exchange traded funds), capital protection funds and etc. At NEBA Financial Solutions, we offers two types of UCITS Funds namely, the Asset Allocation Funds and the Risk-Rated Funds.

Asset Allocation Funds

Asset allocation funds are funds whose investment strategy is driven by broader decisions on the relative performance of different types of assets, such as property as opposed to shares.

Different type of assets are weighted differently on the basis of the portfolio manager’s assessment and the requirements of the investment policy. The investment fund’s allocation to different assets may vary by sector, country, region or other considerations.

Click here to view our Asset Allocation UCITS Funds 

Risk-Rated Funds

The Risk Rated funds will divide your capital investment into a range of building block UCITS Funds. The percentage of your capital suggested for each fund will be in line with your individual risk profile.

This family of funds can also be invested individually or you can use the recommended allocation to each Fund depending on your appetite for risk. For example, if you have a medium or balanced attitude to risk , you might select the Balanced or High Income funds, whereas if you have low risk tolerance, you might prefer to go for the Cautious fund.

Click here to view our Risk-Rated Portfolio Solutions 

Why invest in UCITS Funds?

  • Investors Protection  – Universal rule on how funds under should be governed, managed and structured to safeguard assets
  • Eligible Assets – Funds are only allowed to invest in selected assets that are qualified based on transferability and liquidity requirements
  • Diversified Allocation – Designed within strict bounds of asset allocation to reduce vulnerability of asset swings
  • Transparent Pricing – Provision of fair market value preventing late trading and malicious practices
  • Risk Management – Procedures adhere to levels of risk assigned to each investor’s appetite
  • Comprehensive Information – Full disclosure of fund’s development, performance, strategies and risk

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