Investing in funds: the basics

Thinking of investing? Here's what you need to know about funds.

You know the saying 'don't put all your eggs in one basket'? That's what you're trying to achieve when you invest in funds. Funds allow you to invest in more than one asset at once.

You'll hear the word 'asset' a lot when investing. An asset is anything with monetary value, such as shares in a company, gold, or property. 

So rather than putting all your money into company shares or property, for example, you're pooling your money with other investors and putting it into a fund that could be made up of shares and property (and other assets). 

With funds, you're trying to achieve diversification with your investments. So, for example, if one company's shares go down, another company's might remain stable or even go up.

Lots of baskets for your essential eggs. 

What are funds made up of?

Each fund is made up of a few different assets. Here are the most common.

Shares

Buying a share is like buying a tiny piece of a company. If the company's value goes up, so does your share. If it goes down—you guessed it—so does your share. 

Bonds 

Think of a bond as an IOU. When a government or company wants to raise money, it might 'issue a bond'—effectively asking for a loan in the financial markets. Investors give them that loan and are paid interest on a regular basis, as well as the capital of the bond when it matures.

Money Markets/Cash

Investing in cash involves:

• Purchasing a money market mutual fund.
• Buying a Treasury bill.
• Opening a money market account at a bank.

Money market investments are generally low-risk but tend to have lower returns. Inflation could also reduce cash's purchasing power.

Property

Property can be suitable to include in a portfolio as it pays an income and has the potential for capital growth from its value. Your money may be invested in commercial or residential property (or both). Aviva currently only offers access to commercial property funds. Property can take longer to sell than other assets, so there may be a delay, and in some cases, up to six months, if you want to move your money out of a property fund.

How are funds managed?

You've got two choices regarding how your funds are managed– actively or passively. 

Actively managed funds

Actively managed funds are managed by a fund manager who makes all the investment decisions. They monitor the market and decide what to invest in or when to buy and sell assets, aiming to outperform an investment benchmark or index. For example, a fund that invests in European company shares may aim to outperform the MSCI Europe Index. 

Why choose an actively managed fund?

• The human touch: the benefit of a fund manager's judgement and expertise
• Flexibility with investments 
• Potential for higher returns than the benchmark

Passively managed funds

In comparison, the fund manager of a passively managed fund or index fund aims to replicate the performance of an index, such as the MSCI Europe Index, rather than outperform it. The way a passive fund is managed will remain the same, no matter how it performs.

Why choose a passively managed fund?

• Usually lower charges
• Track the performance of the benchmark

A fixed allocation fund is a passive investment that allocates money between equities and bonds.

How do you invest in funds?

You can invest in funds through your pension, savings and investment products. Aviva's investment range offers three ways to select the funds you want to invest in. 

Managed for You Funds

These ready-made funds are a good option if you're new to investing because they do the hard work for you and are a cost effective investment option. All you have to do is choose how risky you want to be with your investments, and you'll be presented with a portfolio of funds to match that risk level. There are active, passive and fixed allocation options available.

Find out about our Managed for You Funds.

Managed with You Funds

This is a shortlist of funds selected by our experts that they believe will perform well.

Shortlists are a good option if you want more control over the individual funds you're investing in but don't want to plough through everything available. At Aviva, we monitor the funds in our Managed with You range on an ongoing basis to ensure they continue to meet our selection criteria.

Find out more about our Managed with You Funds.

Our Self-Directed Investment Option

For our pension investors only, it’s possible to build a bespoke portfolio by choosing investments from our self-directed investment platform. Sounds daunting? This is usually an option for confident investors.  

Find out more about our Self-Directed Investment Option.

ESG investing – profit with purpose

Environmental, social and governance (ESG) investing looks at companies that aim to do good for the planet, society, and the people they employ to work for them. Although profit is still high on the agenda regarding ESG, a shift towards sustainability means performance is one of many objectives.

You can find out more about ESG investing at Aviva here.

Watch our 1 minute pitch to learn more about Funds