Are you looking to get started with the best mutual funds in the UK? Are you new to mutual fund investing and therefore you would love to grasp a few concepts here and there before getting started? If you answered yes to one of the questions above, today is your lucky day because your quest has come to a fruitful end, thanks to this informative mutual funds guide.
By reading it, you’ll gain so much knowledge on mutual funds investing. With that knowledge, you will find huge success in this niche and eventually become very well. This engaging post covers all things mutual fund investing.
For example, it explains what mutual funds are, the technical terminologies commonly used in this niche, and how mutual funds work. Besides, it lets you in on how to profit from a mutual fund, how to choose one, and how much it costs to invest your money with one.
Lastly, it points you to the top ten best mutual funds out there and answers a few questions you may have about this niche. Without ado, let’s get started;
Mutual Funds Investments In The UK
Mutual funds are available all over the world. Yet some are global such that they target investors from all corners of the globe. But others are regional or limited to one particular country. That means only investors based in specified regions or countries can benefit from them.
Before taking you through the best mutual funds UK based on my research though, I would like to explain a few technical terminologies, which I’m going to be using throughout the article. This should help you understand the post better.
- IA Sector—-IA stands for “Investment Association.” In the context of mutual funds, this refers to the target audience of a mutual fund. For example, some mutual funds target global investors. Other funds deal with investors from a particular geographical region(s) or country(countries). Just to be clear, geographical regions may include places like North America, the United Kingdom, Asia-Emerging, Asia-Developed, etc.
- YTD return—-stands for year-to-date-returns. It refers to the amount of profit made by a mutual fund since the first day of the current year. The information may help investors and analysts alike to assess the performance of a mutual fund to determine if it’s worth investing in or recommending.
- Fund Size—-it’s the number of funds a mutual fund is managing. In the UK context, it’s normally in the tunes of millions to billions of pounds
- Stock—-it’s a form of security that gives the holder proportionate ownership of the company that issues it. Publicly traded companies tend to issue stocks to investors who buy those to become shareholders. In the context of mutual funds, the terms stock and equity are used interchangeably.
- Bonds—in simple terms, these are loans that mutual funds issue to other entities including corporations and even governments. The issuers, of course, benefit by earning some interest on their money.
- Asset Class—-this refers to the particular category of investment(s) in a mutual fund. Common mutual fund investment categories are; cash, bonds, stocks, and real estate.
What Are Mutual Funds?
A mutual fund is an investing entity that allows investors their money in a wide range of portfolios that include cash, cash equivalents, bonds, and stocks.
While there are many different types of mutual funds, the funds listed and explained below are more common than the rest;
- Money market funds.
- Stock funds.
- Bond funds.
Money market funds focus on highly liquid, short-term financial instruments like cash, bills of exchange, government bonds, commercial paper, and promissory notes. Meanwhile, stock mutual funds invest in stocks offered by publicly traded companies. As for bond mutual funds, these are investment companies that concentrate on corporate and government debts popularly known as “bonds.”
How Do Mutual Funds Work In The United Kingdom?
Mutual funds work in a very elaborate manner to ensure that everyone involved gets to profit. The entities pool money from investors and then invest the money in the different financial instruments available in the market including the ones mentioned above. The financial instruments that a mutual fund has invested in are known as its portfolio.
So, how exactly does a mutual fund pull funds from investors? Is it through a general fundraiser where investors come together to raise funds or another way? Well, mutual funds raise their capital by offering shares to interested investors. By acquiring some shares, an investor acquires part ownership of the company and enjoys the income the company generates
Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund. That gives the investor the right to receive part of the income the company generates, depending on the number of shares they hold.
How Do I Profit From A Mutual Fund?
I get asked this question lots of times by people who are considering trying mutual funds. And my answer to them is always; there are a few things you can do to ensure that you are going to be able to profit from a mutual fund. It’s a specific checklist you must follow.
The first thing you need to do is learn the basics of mutual funds investing and be familiar with the common strategies involved, including “redemption.”
What is ‘Redemption’ in mutual funds investing? In this context, redemption refers to the repayment of fixed-income security on or before the asset’s maturity date. These securities including bonds, certificates of deposits, and treasury notes are simply money that is borrowed to the government or entities by a mutual fund, using the investors’ assets. This money is to be repaid after a certain period.
As an investor, you can request to be repaid your share of this before or on the maturity date of the fixed-income security. This process is called redemption. In most cases, it’s the fund manager who processes redemption requests.
You can receive your funds in three different ways, depending on how you wish to have the money disbursed. In other words, the fund can be forwarded to you as a one-off lump-sum payment, small regular payments, or both.
Something else you need to do to profit from a mutual fund is to know how to choose a good mutual fund before choosing one. You see, there are many companies out there that serve as mutual funds.
Unfortunately, not all are the same in terms of rewards. In other words, some funds are scams whereas others offer a poor return on investment. To invest profitably, you want to avoid both the former and the latter and instead choose a good fund.
Best Mutual Funds UK List
There is no doubt about the fact that there are hundreds or more mutual funds out there from which you can choose. However, you don’t want to choose just any other company out there. Don’t forget that no two mutual funds can be the same in terms of value for money. In other words, some mutual funds will work for you well as an investor. Others will leave you with a huge disappointment.
That’s why you must research wildly before getting started with these investment companies. You want to read as many reviews as possible to find out which companies are good and which ones are not. But the good news is that with this comprehensive review of the best mutual funds in the UK and guide, you don’t have to do so much work. That’s because it has done all the heavy lifting for you by compiling together the top ten best companies from which you can choose.
All you have to do is go through the list and choose a mutual fund you feel best suits you. With that said, let’s start with the #1 mutual fund in the UK, according to my research.
1. Fundsmith Equity
Ranked number # 1, Fundsmith Equity is a well-known mutual fund. The company was established in 2010. Terry Smith is its Chief Executive and Chief Information Officer.
Headquartered in London, Fundsmith Equity has a presence in many different parts of the world including, the UK, EU, USA. Other countries include France, Canada, Denmark, and Finland. That is not to mention Spain, Mauritius, and South Africa.
Fundsmith Equity boasts a diverse range of investors. It entails private individuals, prominent families, private banks, heirs, and charities.
The company holds several well-performing stocks from different companies. These include but are not limited to PayPal, Microsoft, IDEXX Laboratories, the Estee Lauder Companies, and Facebook. As of 30 June 2021, it was managing a collective fund totaling £26.0 billion.
According to the company’s website, the mutual fund’s returns for the period ending 30 June 2021 were 17.3%. And the minimum investment in it is £1,000.
2. Vanguard LifeStrategy 80% Equity
Established on 23 Jun 2011, Vanguard LifeStrategy 80% Equity is arguably the second-best mutual fund in which you can invest. Its parent company is Vanguard Investments UK, Limited. The latter was founded by Jack Bogle and it has been operating since 1975.
Just like other top mutual funds, Vanguard LifeStrategy 80% Equity boasts a massive global presence. For example, the mutual fund has operations in Europe, Middle East, Canada, Latin America, and Australia. It can also be found in Japan, the United Kingdom, Asia, and the United States.
Vanguard LifeStrategy 80% Equity’s investment portfolio comprises 80% equity and 20% bonds. As of 30 June 2021, the company was managing a collective fund amounting to £ 6.49bn.
Some companies it has invested in are; Alphabet Inc(Google’s parent company), Apple Inc, Facebook Inc, and Microsoft Corp. That is not to mention Unilever, Amazon, AstraZeneca, HSBC Holdings, Diageo, and GlaxoSmithKline.
According to the company’s website, Vanguard LifeStrategy 80% Equity posted 18.66% in returns for the year ending 30 June 2021. And for as little as £100.00, you can become an investor in this mutual fund.
3. Vanguard LifeStrategy 60% Equity
Vanguard LifeStrategy 60% Equity is another mutual fund by Vanguard Investments UK, Limited. That means most aspects of it are similar to those of the latter except for the investment portfolio proportions. Unlike the latter, its portfolio comprises 60% equity and 40% bonds. The mutual fund holds several types of bonds. These include UK investment-grade bonds, index-linked bonds, and government bonds. And as of 12 July 2021, the company’s fund size was £11.0 billion. Just like its sister mutual fund, it has holdings from both UK companies and non-UK companies.
According to the mutual fund’s website, the company realized a profit of 13.44% for the year ending 30 Jun 2021. The company accepts investors globally. And the minimum investment you can have in this mutual fund is £500.00.
4. Baillie Gifford American
Before describing Baillie Gifford American mutual trust fund, let me explain that Baillie Gifford, the company behind this trust fund, operates a wide range of trust funds. Besides Baillie Gifford American, other mutual funds this investment company operates include but are not limited to Baillie Gifford Positive Change and Baillie Gifford Global Discovery. So, let’s have a look at each mutual trust fund, starting with Baillie Gifford American;
Based in North America, Baillie Gifford American is a highly ranked mutual fund in which you can invest if you are in North America. Launched on 31 July 1997, the company manages £6,494 million on behalf of North American investors. It has invested this fund in equity, fixed income, multi-asset, and balanced portfolios.
Its top ten holdings that make nearly half of its equity are; Shopify(7.8%), Wayfair(6.0%), Amazon.com(5.5%), The Trade Desk(4.3%), Roku(4.3%), Tesla Inc(4.2%), Moderna(3.9%), Twilio(3.8%), Netflix(3.5%), and Zoom(3.3%). Baillie Gifford American’s rate of return for the year ending 30 June 2021 was 54.5%. What this means is that investors made more than half the value of their investment in profits. The minimum investment in this mutual fund is £100.
5. Marlborough Nano Cap Growth P
Founded on 31st October 2013, Marlborough Nano Cap Growth P is arguably the 5th best mutual fund in the UK. Currently, the company boasts 152 holdings and a fund size of £388 million. Its holdings consist of both UK and international equities, with the former making 89.99% of the company’s total equity.
These are purchased stocks from the following UK companies; IQGEO Group, IMPAX Asset Management Group, Jubilee Metals Group, and Cerillion. Other companies are; Eagle Eye Solutions, Volex, Gear 4 Music Holdings LTD, SIGMA CAPITAL GROUP, and WATER INTELLIGENCE. The company’s rate of return for the year ending 12th July 2021 was 76.61%. To invest in this mutual fund, you need to have at least £100.
6. Vanguard LifeStrategy 100% Equity
Vanguard LifeStrategy 100% Equity is like the eldest sister of the other Vanguard LifeStrategy-related mutual funds. The fund size of this global mutual fund as of 09/07/2021 was £3382.97million. The overall portfolio composition of the company is made up of equity holdings(99.07%), bond holdings(0.04%), others(0.78%), preferred(0.02%) and cash(0.09%).
The minimum investment in Vanguard LifeStrategy 100% Equity is £100.00. The fund’s rate of return for the year ending 1st June 2021 was 22.5%.
7. Baillie Gifford Positive Change
Unlike Baillie Gifford American that targets only North-American-based investors, Baillie Gifford Positive Change welcomes investors from all parts of the world. Launched on 3 January 2017, this mutual fund today boasts a fund size of at least £2,548 million with 34 holdings.
Its top ten holdings are: Moderna(7.37%), ASML Holding NV(7.33%), Tesla Inc(7.11%), and Taiwan Semiconductor Manufacturing(6.74%). That’s not to mention Mercadolibre Inc(4.57%), Illumina Inc(4.36%), and Nibe Industrier AB(4.00%). The rest are; M3 Inc(3.95%), Umicore SA(3.65%), and Dexcom Inc(3.44%).
For the year ending 1 June 2021, the company’s rate of return was an impressive 47.03%. Its top-performing countries are; USA, Netherlands, Taiwan, Denmark, Sweden, Japan, Belgium, Canada, India, and China, in that order. For as little as £100, you can invest in Baillie Gifford Positive Change.
8. Vanguard US Equity Index
Vanguard US Equity Index is another sister of the Vanguard mutual funds. Launched on 23 June 2009, the fund boasts a size of £11116 million. Unlike its sisters that target investors globally, it focuses on North-American-based investors only. Something else that makes it different from its counterparts is that it has invested purely in stocks/equity. 98% of the equity exists in the United States. The rest can be found in the UK(0.53%), Europe(0.29%), Asia-Emerging(0.25%), and Asia-Developed(0.06%).
Just above 21% of its holdings are in the world’s top 20 companies. The companies are; Apple Inc(4.5%), Microsoft Corp(4.3%), Alphabet Inc/Google(3.2%), Amazon Inc(3.2%), Facebook Inc(1.8%), and Berkshire Hathaway Inc(1.3%). The rest are; JP Morgan Chase & Co(1.1%), Tesla Inc(1.1%), Johnson & Johnson(1.0%).
According to the official website, the company recorded 25.25% returns for the year ending 31 May 2021. To invest in it, you’ll need at least £ 2,163.26.
9. Baillie Gifford Global Discovery Fund
Just like Baillie Gifford Positive Change, Baillie Gifford Global Discovery targets investors from all around the world. Launched on 03 May 2011, the £2.33 billion(as of 30 June 2021)mutual fund is in many different countries and regions. These include the USA, the UK, Asia-Emerging, Japan, and Europe-ex Euro.
Concentrating only on stocks and cash, its portfolio composition entails non-UK stock(85.73%), UK stock(7.70%), and cash(6.57%). The company’s top 5 holdings that barely make 19% of its portfolio composition are; Tesla(4.32%), Staar Surgical Co(4.08%), Ocado Group PLC(3.93%), Zillow Group Inc(3.41%), and Alnylam Pharmaceuticals Inc(3.16%).
According to the product website, Baillie Gifford Global Discovery Fund posted an annual percentage return of a whopping 40.6% for the period ending 31 March 2021. Just like the case in many other best mutual funds out there, the minimum investment in this mutual fund is only £1,000.
10. MI Chelverton UK Equity Growth
Launched on 20 October 2014, MI Chelverton UK Equity Growth is a new entrant on the tier of top ten best mutual funds 2021. Boasting a fund size of £1,526 million(as of 31/05/21), this top-performing mutual fund concentrates on the UK All Companies as far as its IA sector goes.
The types of investments it holds are small and mid-cap UK stocks or equities. It’s top ten holdings include; Future plc(2.22%), dotDigital(2.13%), Clinigen(2.04%), and Volution Group(1.95%). That’s not to mention; CentralNic(1.86%), Diversified Gas & Oil(1.87%), Alliance and Pharma(1.78%). The rest are; Gamesys Group(1.69%), Synthomer(1.5%), and Renew Holdings(1.5%).
According to the company’s website, this mutual fund has recorded a cumulative performance of 63.01% since its launch. The minimum investment in MI Chelverton UK Equity Growth is £1000.
How To Choose A Good Mutual Fund In The UK
With knowledge, selecting a great mutual fund in the UK can be a walk in the park. However, many beginners don’t have this knowledge. But the good news is that I’ll pass it down to you without any conditions. With that said, let’s get to it;
1. Consider The Minimum Investment Required By The Company
One of the key aspects that distinguish mutual funds from each other is the minimum investment. In other words, the minimum amount you can deposit in a mutual fund to become an investor isn’t standard across the board. Basically what I’m saying is that each mutual fund has its specific minimum deposit. In my experience, though, I’ve noticed that the minimum investment in many UK mutual funds ranges between £100 and $10000.
That means when choosing a mutual fund, you’ll need to narrow down your list to options that are within your budget. For example, if your budget is £100, there would be no need to waste time checking out even funds whose minimum investments surpass that amount.
2. Look At The Costs Of Investing In A Mutual Fund
Mutual funds help make your money work for you. In other words, they invest your money with expertise to make you profits. Obviously, this comes at a small cost that entails a few different kinds of charges. These include what’s known as “expense ratio,” annual & custodian fees, as well as other costs such as purchase and redemption fees.
The expense ratio refers to the amount of money a mutual fund will charge to help manage your funds so that you get profitable returns. It includes the annual marketing costs incurred by the fund.
Expressed as a percentage, this cost is calculated yearly based on your total assets invested in the fund. The fee will be deducted from your mutual fund returns at the end of the year such that if your returns are 5% and the expense ratio is 1%, your net return will be (5-1)%=4%.
The expense ratio is typically between 0.5% and 2.5%. To maximize your returns, you want to select a mutual fund with the lowest expense ratio.
Meanwhile, the annual custodial fee is the money that a mutual fund will charge yearly to keep your investment safe. Don’t worry, this is a very small amount that hardly exceeds £70. No matter how small it is though, you want to choose a mutual fund that charges the lowest annual custodial fees to maximize your profits.
Lastly, purchase and redemption costs refer to what your mutual fund will charge you when it helps you buy or sell stock in the process of managing your funds, respectively. Again, you should go with a mutual fund that charges low purchase or redemption rates.
3. Pay Attention To The Rate Of Return Of The Company
As you’ve seen from the best mutual funds UK list above, mutual funds have different rates of return. In other words, some have high rates of return whereas others have low RoR. Again, some have considerable(neither high nor low) RoR.
You obviously want to make the most out of your mutual fund as an investor. The rate of return is a good indicator of what you can anticipate from your mutual fund. To that effect, you want to choose a fund that posts a high or at least considerable rate of return, unless otherwise.
When analyzing the RoR, pay attention to both yearly data and several years’ data. Many investors make the blunder of concentrating only on the entity’s most recent RoR data. Consequently, they miss out on the true picture of the company’s performance.
4. Consider The IA Sector Of The Company
As said earlier, the IA sector in the mutual fund industry refers to the market sizes these companies serve. It’s worth noting that mutual funds do not all cover the same market sizes. For example, some companies are global or regional, whereas others are strictly national. So, what IA sector should you go for when choosing a great mutual fund UK? Well, the answer depends on you and your circumstances.
For example, if you have no plans of ever leaving the United Kingdom, why bother with selecting a global mutual fund that may, in fact, cost you more? Don’t forget that mutual fund charges vary, depending on many factors, such as the size of a fund.
5. Look At The Risk Profile Of The Company
Different mutual funds bear different levels of risk. However, don’t forget the fact that the higher the risk, the higher the returns, and vice versa. That means if you want to make more from a mutual fund, you need to be prepared to face a high risk.
To understand the risk profile of a fund, you’ll need to look at two things;
- The asset class.
- The nature of the companies in which the fund has invested.
As far as asset class goes, shares have high risks compared to other asset classes in a mutual fund. On the contrary, bonds have a low risk compared to other investment options in a mutual fund.
If you are risk-averse and don’t mind making very little from a mutual fund, choose a fund that predominantly focuses on bonds and other low-risk asset classes. But if you are an avid risk-taker interested in making the most out of a mutual fund, select a fund that concentrates on high-risk asset classes such as shares, for the most part. However, if you neither want to take too much high risk and too much low risk, it would be best to go with a mutual fund that combines asset classes of both high-risk and low-risk levels.
To understand the risk profile of a mutual fund based on the nature of the companies in which the fund has invested, there are two things you need to keep in mind. First, large companies that are already successful bear a low risk. The opposite is true for startups that haven’t broken even yet.
A mutual fund whose investment portfolio mostly consists of holdings in large and successful companies has a low-risk profile. On the other hand, a fund whose investment portfolio, for the better part, comprises startups that haven’t yet realized their maximum profit potential has a high-risk profile.
6. Find Out What Other Investors Are Saying About Each Mutual Fund On Your List
At this point, you’d have probably narrowed down your long list to just a few potential options. Now, the final step you want to take to find the best of all is to check out what other investors are saying about each company. Normally, you would need to read a few trustworthy reviews of each trust fund to see what investors are saying about the company. However, the review you are reading right now has done all the heavy lifting for you. As such, you don’t have to search for a trustworthy review of every single trust fund on your list provided it’s covered in the post.
How Much Does It Cost To Invest In Mutual Funds?
As you saw earlier, investing in a mutual fund comes with a whole lot of costs. These include the expense ratio, annual custodial fees, and purchase or redemption costs.
For many beginner investors, these costs can be relatively confusing. It sometimes leaves them wondering as to how much it really costs to invest in a mutual fund. Well, all the above costs are deductible from your investment returns. In other words, they are not paid for separately as you might think.
So, how much it really costs to invest in a mutual fund pretty much depends on the minimum deposit required by the fund. For example, if the minimum deposit is £1000, that’s how much it will cost to invest in the fund, and so on.
How To Invest In A UK Mutual Fund
Once you identify a suitable mutual fund UK, the next step is to invest and sit back as you wait for the profits to start coming in. To do so, sign up and wait for your account to be verified.
Signing up is as easy as following simple on-screen instructions available on the company’s website. Next, deposit at least the required minimum deposit and sit back and relax as you wait for the profits to start trickling in.
Mutual funds are a great way to make money with the help of professional experts. Mutual funds are companies that pull together funds from investors and then they invest those funds in different financial assets such as bonds, shares, and stocks. After a specific period, the companies allow investors to receive the yields their investments have produced.
While there are several mutual funds UK, only a select number are not to be great value for money. If you are shopping for a great mutual fund, be sure to consider the above options. According to my research, these are some of the best mutual funds available in the UK in 2021.
Before selecting a fund though, make sure you know what to look out for when choosing one. Your checklist should include; the minimum investment, the cost of investing, the rate of return, the IA sector, and the risk profile of each company you consider. Apart from that, you should also be sure to check out what other investors are saying about each.
Mutual Fund FAQs and Answers
- What are some benefits of mutual funds?
Answer: Mutual funds ensure advanced portfolio management and come with lower risks compared to other similar forms of investment. On top of that, these investment options offer convenient and fair pricing, plus they allow investors to reinvest their dividends for even bigger profits.
- What are some downsides of mutual funds?
Answer: High investment charges including expenses ratios and redemption fees, poor trade execution, and management abuses are some potential disadvantages of investing in a mutual fund.
- Who regulates UK mutual funds?
Answer: a body known as the Financial Conduct Authority(FCA) does.
- What type of investments do mutual funds offer in terms of short-term and long-term investments?
Answer: While mutual funds mostly allow for long-term investments, these firms also provide short-term investments.