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Investment types

Investment types

The information in this guide was last updated on 06/04/2015

Typically, when investing you will purchase an investment fund and most funds invest in a blend of different assets.

Asset types

Most funds invest in cash and non-cash assets. This kind of variation can help manage your risks because when one kind of asset type is losing value, another is often making gains.

  • Cash - this is the most stable investment option, but often your returns are lower than the rate of inflation.
  • Fixed interest securities - This asset class includes corporate and government bonds. With bonds, investor's loan money to a company or government – barring default, the loan is repaid in full along with interest. These are generally considered relatively low risk investments.
  • Property - This asset class typically invests in commercial properties like office buildings, warehouses or shopping centres. Property is generally less risky than Shares, but it can go through periods of fairly large losses. Commercial Property, like house purchases, can take a significant length of time to be bought and sold. This may mean that you could be required to wait before you can get your money out of a property fund. In addition property valuations are determined by independent property experts and are based on opinion rather than fact; given you only really know the value of a Property when it is sold.
  • Shares - Shares are investments made into companies in the UK and abroad. Shares are generally the riskiest of the four main kinds of assets, since stock markets can have long periods of losses. But they can offer the potential for large gains.

Investment Funds

Working with third-party companies, we offer Collective Investments.

These consist of three product types: Unit Trust, Open Ended Investment Company (OEIC), and Stocks & Shares ISAs.

The aim of a Collective Investment is to produce medium to long-term growth.

All Collective Investments are provided through Cofunds Limited.

Unit Trusts
With a Unit Trust, a fund manager buys a number of bonds or shares on behalf of the fund. Investors looking to invest in the fund will buy unit(s) of this fund. Each unit represents a small but equal part of the fund.

Open Ended Investment Company (OEICs)
An OEIC is similar to a Unit Trust but the OEIC is set up as a company, so the investor buys shares in the company instead of units (as with a Unit Trust). The fund manager pools all the investors’ money together and manages it for them the same way as a Unit Trust.

Stocks & Shares ISA
A Stocks & Shares ISA is a Unit Trust or OEIC placed in a ‘wrapper’ that gives you tax advantages. A Stocks & Shares ISA has no further tax to pay on any dividends/interest received and is also free from Capital Gains Tax (CGT), which may be of more interest to the wealthier investor who may have used up their annual CGT allowance.

Options: If you make a Collective Investment through Nationwide, you can:

  • Set up and amend regular premiums into your investment (minimum is £20 a month, no maximum)
  • Depending on the type of fund, you can take income
  • Top up your investment
  • Switch your investment to a different underlying fund
  • Transfer all or part of your Unit Trust/OEIC to an ISA for tax efficiency purposes
  • Withdraw your capital at any time.

Find out more about Stocks & Shares ISAs

Most funds will have a fund manager. The fund manager’s role is someone who manages your fund. They continually monitor the investment and its performance and adjust the investments made by the fund. They choose the assets the fund invests in and the mix between the different types of assets and aim to ensure the fund performs in line with its medium and long term objectives.

Fund managers will take either an active or passive fund management style:

Active - the fund manager makes investment decisions aiming to deliver superior returns. However, you will typically pay more for investing these funds than passive investment funds.

Passive - passive fund managers typically track a market or asset type and aim to closely match its performance. These funds are often referred to as tracker funds and are usually cheaper than actively managed investment funds.

Whether you invest with or without advice, you can hold your investment either directly with a fund manager, or on a platform. A platform allows you to view and manage your investment online when you want to.

How to compare investment funds

Key Investor Information Documents

All investment funds are summarised in a Key Investor Information Document (KIID). To make it easy to compare investment options, each KIID has the same five sections. Here’s what they are and why you need to read them before you invest.

Objectives

Objectives

Every fund has a goal. Some are designed to grow in value, others provide regular income. Many are designed to combine income and growth. This section describes the fund’s goals so you can see whether they match what you’re looking for. 

Risk and reward profile

Risk and reward profile

This section shows you where a fund falls on the risk-return scale. The scale ranges from 1 to 7, with 1 being the lowest risk and 7 being the highest.

Typically, the higher the risk, the higher your potential gains. But higher potential rewards also mean the chances of losing money are greater. To get the most out of this section, you’ll need to understand your own attitude to risk.

Charges

Charges

Here you’ll find a fund's maximum charges and fees. These are a good reference, but keep in mind you’re unlikely to pay the full rate, since providers often negotiate for lower fees.

A fund’s charges and fees may include:

  • the entry charge for buying shares
  • any exit charge when selling
  • the annual management fee to cover ongoing charges
  • whether the fund manager charges additional fees under certain conditions.

Past performance

Past performance

This shows you how much a fund gained or lost each year for the past five or ten years (less if the fund is new to the market).

Past performance can be a helpful indicator. It may show you that a fund’s returns tend to be steady or that they change along with the market’s ups and downs. It can also give you some idea of whether a fund manager is outperforming other managers who run similar funds. But past performance does not reflect future results.

Practical Information

Practical information

This section tells you where to look for more information such as contact details or more details on the fund itself.

Understanding risk