Funds Centre |
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By Naomi Caine
So you want to invest in the stock market. How do you start? Most people don't want to buy shares in one or two companies because it's too risky. If the firm's fortunes take a downturn, so do their profits. There are essentially two types of fund. Trackers follow a stock market index, such as the FTSE All Share. They are run by computers, leaving no margin for human error. If the market goes up, so does your return. Of course, if it goes down, the value of your investment will also fall. Click here to visit Yahoo!'s Fund Centre On track A number of experts are fans of trackers and recommend the funds as a solid base for an investment portfolio. There is also evidence that trackers perform just as well as - if not better than - so-called active funds, which employ a manager. Shares have bounced back since March 2003 when the three-year bear market ended. But about three-quarters of UK fund managers have lagged the recovery, according to research by investment manager T Bailey. The average fund has turned £1,000 into £1,565 during the three years to the end of August 2006. However, the same money invested in the FTSE All Share over the same period would be worth about £1,600, less charges. In fact, nearly three quarters of the 278 funds in the All Companies sector failed to beat the FTSE All Share index in the period. Trackers are usually cheap, but charges vary - and you should pick the cheapest. You don't normally have to pay an initial charge and the annual fees can be less than 0.5%. But always look at the total expense ratio (TER) of a fund to get a truer picture of the cost. More than half of tracker funds have annual total expense ratios (TERs) of more than 1%, including the popular Virgin Index Tracking fund, according to research by Fidelity International. Fidelity cut the annual management charge on its tracker a year ago, so its TER is now 0.3%. There is no initial charge. Active schemes are more expensive - remember you are paying the salary of a City fund manager. You can typically expect to pay an upfront fee of 5%-5.5% and an annual charge of up to 1.5%. Click here to visit Yahoo!'s Fund Centre Supermarket sweep If you know the fund you want, you can cut the cost if you buy it through an online fund supermarket such as Fidelity Funds Network (www.fundsnetwork.co.uk) or Interactive Investor (www.iii.co.uk). You will normally pay a reduced initial charge of 1% or 1.25%. But you won't get any advice. There are more than 1,000 funds to choose from so you might want some expert guidance. It's best to seek help from an independent financial adviser (IFA) who must search the whole of the market and give you the option to pay a fee for the service. Find an IFA Most novice investors choose a UK fund because they feel more secure in a familiar market. If you already have a UK fund, it's probably best to look further afield, perhaps to Europe, America or even the Far East. You can get details of all the available funds through the Investment Management Association at www.investmentuk.org. The Financial Services Authority (FSA), the City regulator, also has comparison tables on its website at www.fsa.gov.uk/tables. If you are researching on the internet, try Yahoo's Fund centre, www.trustnet.co.uk and www.moneyfacts.co.uk Past performance Tax tip
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