Comparing funds: the essentials
Funds are a popular choice for many investors. If you’re not already familiar you can find out more about them here
There are thousands of funds. So it’s good news that, to help make it easier for you to compare them, regulations mean that the vast majority have a document that covers the information you’ll need. It’s called either the Key Investor Information Document (KIID) or the Key Information Document (KID) depending on the type of fund, and you should be able to get it from any website where the fund is offered for sale.
It’s essential to read the KIID or KID before you commit to putting your money into a fund. That way you know what to expect and exactly what you’re putting your money into. There are some differences between the detail of what you’ll find in each type of document but they are both short and to the point - typically just two or three pages at the most – and focused around the same main information you need to know.
Fund objectives and investment policy
This section explains what the fund aims to achieve for your money and how it is run to do this. That usually includes what types of investment it may use (for example shares and bonds) and any particular areas that it will focus on (such as a sector like technology or a geographical region like the UK or Japan). This can help you get a sense of whether the fund’s aims are in line with your own.
Risk and reward profile
This tells you about the main risks you might face by investing in the fund. It includes a visual risk and reward indicator, like the one below, showing you where the fund sits on a scale of 1 (lower risk) to 7 (higher risk). This can help you decide whether the fund is a match for the level of risk that you want and can afford to take with your money in making it work harder for you.
Here you’ll find out how much you pay to the fund manager to cover their fees and other costs in running the fund. Apart from any entry or exit charges, you don’t have to pay the charges as a separate amount. They are automatically taken into account when the fund is valued. But they do have a direct impact on how much you might get back from the fund, so you’ll want to be happy that the charges are set at a reasonable level for how it’s run and what it potentially offers to you, especially compared to other funds of a similar type.
|Ongoing Charges Figure||This is an amount you’ll pay the fund manager for investing your money. It’s usually set as a percentage of the value of your investment over a year (0.50% for example) but as its name suggests is actually worked out and collected on an ongoing basis. It pays for the fund manager’s expertise and their costs in running the fund.|
|Transaction costs||These are costs the fund pays when the fund manager buys and sells investments on its behalf. Not all types of fund must currently disclose these costs, but they are useful to know about when they do.|
|Performance fee||These can kick in if a fund does particularly well for investors. Like the Ongoing Charges Figure they’re generally set as a percentage of the value of your investment. Not all funds have one.|
In Key Investor Information Documents (KIID), this shows how the fund has performed in recent years, typically in the form of a graph or chart going back 10 years (or to whenever it was launched, if that was less than 10 years ago).
Key Information Documents (KID) take a different approach, using forward looking performance projections instead. In both cases this can only give you a rough idea of how the fund might perform. There’s no guarantee. Past performance is not a guide to future performance.
This can include things like contact details, where the fund is based, who regulates it and the identity of anyone (a depositary or custodian) who helps to hold the fund’s assets and keep them safe.