If you’re looking to plan for retirement, purchase property, or just general savings, then investment funds can be a great option.
What are Investment Funds?
Investment funds are a supply of capital belonging to numerous investors and are used to collectively purchase assets, with each investor retaining ownership of their own shares.
Investment funds provide a broader selection of investment opportunities, lower fees, and greater control than investors might have when alone.
Types of investment funds include:
- Money-Market Funds
- Mutual Funds
- Hedge Funds
- Property Funds
- Exchange-traded Funds
Investing in the UK Property Sector
Like investment funds, property investment is often seen as a relatively lower-risk and reliable strategy.
According to The Times newspaper property guide, depending on where you look, investors can keep costs relatively low compared to other investment strategies. Why not review the various?
Property prices fluctuate across the country, but cities like Liverpool and Manchester typically see investment opportunities sell for around £100k or less. This is a massive discount compared to cities like London, which sees average house prices of around £741,125. There are many different types of property investment, from Buy to let to property development.
There aren’t many funds that invest in residential property, though, with the commercial property market offering the bulk of opportunities for investors.
Divided into three areas – retail, industrial, and office – most investors will engage with the commercial market through REITs (Real Estate Investment Trusts).
However, one of the significant advantages of engaging with investment funds is that the pool of money collected can be used by individual investors to diversify their portfolios, meaning that many could choose to cash out and enter the residential market at a later period.
This makes investment funds one of the better overall strategies to consider, especially in terms of advancement and evolution.
Advantages of Investment Funds
Other advantages to Investment Funds include:
It’s a Liquid Investment
Unlike many other strategies, fund investors can get their money whenever they want.
The lack of liquidity in assets is often the most considerable risk of investing. If someone were to put their money into property, it could take some time before they see any returns.
On the other hand, if someone were to invest in funds, they could see the money almost immediately.
At the end of each day, the value of individual shares is calculated, and the redemption order is given. This means that, depending on how long it takes to transfer, an investor could see the money in their account within a matter of days.
Flexibility and Diversification
Diversification in investment will significantly lower the amount of risk.
The Best UK Funds will include a range of different assets, which can be adapted to fit the needs of varying investor goals and profiles and mitigate the risk of holding a single asset.
Most investors are likely to follow the crowd, engaging with the assets that are already performing well without considering that the bubble might be about to burst. Investing in funds allows investors to see natural and automatic flexibility by holding different groups of assets that all act independently of individual performance.
The greatest benefit of this is that, in a fund structure, investors will have access to massive amounts of assets that would typically be difficult for them to individually acquire and manage – all through a single, convenient strategy.
Management and Regulation
Dedicated fund managers mean that investors do not necessarily have to be experts themselves to succeed.
Investors can delegate the majority of work to a professional fund management team, who have the skills necessary to ensure that everything runs smoothly.
Of course, this does not mean there will be incredible wins or a no-risk investment, but the research and time provided will improve the overall process.
Transparency
Investment funds will typically include a KIID (Key Investor Information Document) that provides an in-depth look at investment policy, fees, liquidity, and fund performance and keeps investors in the loop (particularly useful, mainly if fund managers oversee a bulk of the work).
Convenience
Investing in a variety of assets can be time-consuming and massively expensive.
Funds provide the opportunity to own a wider spread of investments without having to acquire underlying assets on their own.
Again, the rebalancing and composition of a portfolio are managed by a professional on behalf of the investor.
The Disadvantages of Investment Funds
Like every investment, funds are not without their disadvantages.
Investment Fund disadvantages include:
Market Risk
Something that plagues almost every investment type is the risk of market instability.
This is no different for investment funds.
If an asset you’re investing in undergoes significant turbulence, then this is a greater chance of value dropping, which could negatively impact an investment in the long run.
Knowing Where to Invest
Likewise, whilst its wide array of options can be positive for investors, it can also provide a stumbling block.
The investment fund market is incredibly broad – perhaps too broad for some.
It can be challenging to determine the best routes to take, especially with the amount on offer.
There are funds with high fees, sometimes unjustifiably so, that can massively eat into profitability.
Some funds are only profitable in certain scenarios or economies or funds that receive massive publicity but have a limited track record.
This is probably the greatest disadvantage to investment funds – there is so much on offer, and knowing where to plant your flag can be difficult.
There are many benefits to using funds as an investment tool. The market is continuously growing, and there are a multitude of advantages for investors to capitalize on. At the same, it’s important to note that this is not a flawless endeavor. As with any venture, investors should take care to ensure that they are as fully prepared as possible.
