Fund types

There are two main types of funds: passive and active.  Passive funds buy all the stocks in an index and are low cost. Active funds select stocks and seek to outperform their benchmark.

Passive funds tend to be much lower cost then active funds.  The rationale for paying higher fees for active funds is that they may outperform their benchmark.

Tracker/ETF Investment Trust Open-end
Passive Low Active Active
cost In-line Moderate to high cost Varied Moderate to high cost Varied
performance performance performance

Fund Structures

The main fund structures for passive funds are index trackers and Exchange Traded Funds (ETFs).  ETFs trade on an exchange and  can be general in nature or focus on a specific area.

The main fund structures for active funds are closed-end vehicles (Investment Trusts) and open-end vehicles.  An open-end fund receives new money when investors buy units.  The pros and cons of the different funds are listed here.

How to buy funds

- Funds can also be bought through an investment platform. Leading platforms include Hargreaves Lansdown, AJ Bell, Interactive Investor, Selftrade and Fidelity Personal Investing. (Comparing Platforms).

- An IFA can also buy funds on your behalf.  It is generally more difficult and costly to buy funds directly from a fund management group.

- Roboadvisors offer low cost exchange traded funds (ETFs) and have pre-set portfolios.