Choosing investment funds
Unit-linked funds offer a wide choice of different investment choices.
What are unit-linked funds?
An investment fund collects cash for investment from many people. This cash is then invested in a wide range of investments, usually between 20 and 100 different investments that are managed by the fund manager. The benefits of investing in a collective investment fund are that you gain exposure to a wide range of investments with a professional manager.
How do investment funds work?
An investment fund is divided into a number of equal units which are then held for each investor. The value of a unit (the unit price) is calculated, usually daily, broadly representing the value of the whole fund divided by the total number of units. If the unit price is increasing, the value of the assets held in the fund is increasing.
Each time an investor pays a contribution into the fund, they’re allocated more units. Similarly, if they decide to withdraw or switch benefits from the fund, units are sold.
There may be a difference between the price at which units are bought by the investor when they pay contributions in (the offer price) and the price at which units are sold on withdrawal or switch (the bid price).
Alternatively, units may be single-priced. This means that they’re bought and sold at the same price, but there may be an additional charge added on the purchase.
You may also pay an annual management charge to cover the costs of running and administering the fund. This charge is usually shown as a percentage, say 1% per year of the value of the fund, and is taken into account when the unit price is calculated.
You can find more information on a particular fund by reading its fund fact sheet. Before investing in a fund, you should also be given a Key Investor Information Document (KIID) that gives you details of the fund’s investment objectives, charges and other information.
Where can I find out more?
If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.