How to Invest in Mutual Funds UK – Invest in Mutual Funds Today!
The chances are, you are researching mutual funds because you like the idea of investing in a managed portfolio of assets. There is something for every type of investor, but with hundreds of funds to choose from, it can be hard to make a decision.
This guide breaks through the jargon and explains how to invest in mutual funds in the UK – with a safe and low-cost broker. We also review the best mutual fund platforms and provide a walkthrough of the signing-up process to complete your purchase today.
#1 Broker to Invest in Mutual Funds UK – eToro
How To Invest in Mutual Funds UK – Choose a Broker
Before you can invest in mutual funds in the UK, you will need to set yourself the task of finding a suitable platform. We have picked out the best FCA brokers and you can see them listed below for your consideration.
- eToro – Overall Best Place to Invest in Funds UK
- Capital.com – Trade Mutual Funds at 0% Commission
- AvaTrade – Credible Broker to Trade Funds With Leverage
We provide a review of the above-mentioned investment platforms in much more detail shortly.
How to Invest in Mutual Funds UK – A Quick Guide For 2021
To invest in mutual funds in the UK, you can follow our quick guide below. This walkthrough details how to sign up with eToro, as the broker is regulated by the FCA and covered by the FSCS. Plus, eToro offers 0% commission investments and zero stamp duty tax on UK-listed markets.
- Step 1: Open an Account with eToro – Open an account at eToro by completing a simple sign-up form. This will invariably include your chosen username and password, email address, telephone number, and your first and last name
- Step 2: Upload Your ID – To finish the KYC process, you will be prompted to attach a copy of a recent bill and your passport (or other photo ID)
- Step 3: Deposit Funds – eToro supports plenty of payment types to finance your account. Choose between an e-wallet, credit/debit card, or wire transfer and enter the amount you want to add
- Step 4: Search for Fund – If you know which fund you wish to add to your portfolio, type the name or ticker into the search bar. If you are unsure, press ‘Discover’, followed by ‘ETFs’. You will need to click ‘Trade’ when you are ready to place your order
- Step 5: Invest in Fund – To complete your purchase, enter your stake in the amount box and check it’s the right market. Finally, click ‘Open Trade’
It’s as simple as that to place an order to invest at eToro. You can stake as little as $50 – or about £36. If the fund you like is valued higher, you will simply be purchasing a fractional amount. If the market is closed, press ‘Set Order’ and eToro will complete your purchase when the relevant exchange opens for trading.
67% of retail investor accounts lose money when trading CFDs with this provider.
How to Invest in Mutual Funds UK – Choose The Best Mutual Funds
Learning how to invest in mutual funds in the UK can be challenging, depending on your knowledge of what’s out there. To offer some inspiration, you will see a variety of the best mutual funds available listed below.
- iShares Core Growth Allocation – Best for Exposure to Growth Equity and Fixed Income Funds
- Fidelity Select Software & IT Services Portfolio Fund – Best Mutual Fund to Invest in Large-Cap Tech Companies
- Matthews China Investor Fund – Great Mutual Fund for Capitalizing on Asia’s Domestic Consumption
- Vanguard International Growth Investor Fund – Best Mutual Fund for Investing in Diverse Foreign Stocks
- Dodge & Cox Stock Fund – Best Value-Orientated Mutual Fund to Invest in
Are you still making your mind up on what type of mutual fund to invest in? Shortly, you’ll see further detail surrounding the above-listed funds. When you grasp how to invest in funds, this extra information should give you a clearer idea of which better suits your goals.
67% of retail investor accounts lose money when trading CFDs with this provider.
Best Mutual Fund Investments UK – Full Analysis
Below, you will find our full analysis of the best mutual fund investments in the UK – based on our own in-depth research.
1. iShares Core Growth Allocation – Best Fund for Exposure to Growth Equity and Fixed Income Assets
This fund is different from the others on our list, in that it is an ETF (Exchange-Traded Fund). The iShares Core Growth Allocation is listed on the NYSE Arca, under the ticker AOR, and tracks the S&P Target Risk Growth Index. This fund is quite risk-averse and holds around 40% bonds and 60% equities. This includes a wide range of companies ranging from small to large-cap. It includes international fixed-income bonds and growth stocks.
As such, the iShares Core Growth Allocation ETF is a simplified way to invest in a passively managed portfolio of assets. This type of investment vehicle often offers more liquidity than when you invest in mutual funds. ETFs are also offered as CFDs by some brokers. Furthermore, top broker eToro allows you to invest in ETFs with 0% commission and a minimum stake of just $50.
The iShares Core Growth Allocation fund has produced average 10-year annual returns of 8.08% and tracks 7 holdings, including index funds.
This fund includes the following holdings:
- iShares Core Total USD Bond Market – 33.72%
- iShares Core S&P 500 – 31.7%
- iShares Core MSCI International Developed Markets ETF – 19.9%
- iShares Core MSCI Emerging Markets – 6.44%
- iShares Global Aggregate Bond UCITS ETF – 5.96%
The rest of this bond includes iShares Core S&P Mid-Cap, and Small-Cap ETFs, and BlackRock Cash Funds Treasury SL Agency. The underlying fixed income and equity funds span the UK, the US, France, Japan, and several other countries. These holdings represent the growth allocation targets of these countries, covering financials, information technology, and many other sectors. The expense ratio for this fund is 0.20%, which is super low.
2. Fidelity Select Software & IT Services Portfolio Fund – Best Mutual Fund to Invest in Large-Cap Tech Companies
When you’re researching how to invest in mutual funds in the UK, the sheer number of options can be a bit daunting. One of the best ways to find a suitable investment is to consider your goals and interests. For instance, if you would like to access companies that focus on technology – look no further than the Fidelity Select Software & IT Services Portfolio Fund. This mutual fund was founded in 1985 and is listed on the NASDAQ, under the unique ticker symbol FSCSX.
The companies within the fund are engaged in the distribution, research, or design of software and technology. Information-based services, software, and technology are an important part of everyday life. If you were to personally choose individual companies to add to your portfolio, this would be time-consuming, and possibly overwhelming for investors with less experience.
As this guide touched on, one of the most common reasons people look to invest in mutual funds in the UK is to gain exposure to a diverse mixture of stocks. The Fidelity Select Software & IT Services Portfolio Fund certainly offers that. This mutual fund holds 94.67% stocks, 4.29% cash, and 1.03% bonds.
To help you decide whether you want to invest in this mutual fund, see its top holdings below:
- Microsoft – 24.39%
- Adobe – 6.29%
- Visa – 6.17%
- Salesforce.com – 6.07%
- Mastercard – 5.12%
- PayPal – 4.65%
Other holdings include Google, Autodesk, Cognizant Technology, Oracle, Palo Alto Networks, and more. As you can see, the majority of this mutual fund is made up of technology and financial sectors, which is great for newbies who might not have thousands to invest in Google or the likes. Fidelity Select Software & IT Services Portfolio Fund has a 10-year average annual return of 23.26%. The expense ratio for this mutual fund is 0.76%.
3. Matthews China Investor Fund – Great Mutual Fund for Capitalizing on Asia’s Domestic Consumption
When you are weighing up your options to invest in mutual funds in the UK, how about a burgeoning economy like China? Matthews China Investor Fund was introduced in 1998 and is listed on the NASDAQ, under the ticker MCHFX. Put simply, this fund invests in companies in China, so it’s a great way to gain exposure to the world’s second-largest economy.
The Matthews China Investor Fund looks at company information such as cash flow stability, integrity, and adaptability, balance sheet data, the number of employees, and more. The main objective of this mutual fund is to invest in companies that show potential capabilities of sustainable growth. Many of the firms within the Mathew China fund make gains from the domestic consumption in the country.
This mutual fund contains net assets totaling over $820 million. The top holdings in the Matthews China Investor Fund are; Tencent, Alibaba, JD.com, China Merchants Bank, Meituan, China International Capital, and CITIC Securities.
The sectors included in the Matthews China Investor Fund are weighted as follows:
- Consumer Discretionary – 23.8%
- Financials – 20.1%
- Information Technology – 13%
- Communication Services – 10.9%
- Industrials – 10.1%
- Materials – 8.5%
The rest of the fund is made up of health care, real estate, utilities, consumer staples, energy, cash, and other assets. The Matthews China Investor Fund has 10-year annual returns averaging 9.20%. Ultimately, when you invest in mutual funds, having a mixture of stocks from various locations is a great way to diversify your portfolio.
As such, this mutual fund is well worth considering for diversification purposes. Please be aware the expense ratio for this mutual fund is 1.09%, which is not the cheapest on our list.
4. Vanguard International Growth Investor Fund – Best Mutual Fund to Invest in Diverse Foreign Stocks
Are you looking to allocate some of your capital to a little more volatility when you invest in mutual funds in the UK? If so, you might consider the Vanguard International Growth Investor Fund. The mutual fund has been around since 1981 and is traded on the NASDAQ, under the ticker VWIGX. This fund focuses on emerging and developed companies with high growth potential, excluding stocks from the US.
The Vanguard International Growth Investor Fund holds stocks from various areas, including 50.5% in Europe, 19% in emerging markets, 16.2% in Canada, 12.8% in the Pacific, and 0.3% in the Middle East. If a deciding factor of whether to invest in mutual funds hangs on dividend payments – you will be pleased to hear this one pays out annually. This mutual fund also pays capital gains made when buying and selling individual assets.
Before you elect to invest in mutual funds in the UK, you will need to study things like its past performance, returns, and holdings. This mutual fund contains 121 stocks, with over $69 billion in net assets. This guide found the funds’ average 10-year annual returns stand at 14.81%.
In order of weighting, you will find below some of the Vanguard International Growth Investor Fund’s holdings:
- ASML Holding NV
- Tencent Holdings Ltd
- Adyen NV
- Taiwan Semiconductor Manufacturing
- Kering SA
- Tesla Inc.
- Alibaba Group Holding Ltd
If you would like to invest in mutual funds but would prefer to start with a passively managed alternative, you might also consider the Vanguard Value ETF. You can invest in the aforementioned ETF with 0% commission at eToro. Furthermore, while the expense ratio for Vanguard International Growth Investor Fund amounts to 0.44%, the Value ETF costs just 0.04%.
5. Dodge & Cox Stock Fund – Best Value-Orientated Mutual Fund to Invest in
When you are considering the best mutual funds in the UK, a worthwhile consideration is a value-orientated portfolio such as Dodge & Cox’s Stock offering. This is a mutual fund that holds 67 companies. Largely, this mutual fund focuses on companies that are seemingly undervalued by the wider stock market. If Dodge & Cox thinks that a stock has a favorable outlook and potential in the long-term, the fund will invest in it.
This mutual fund was created in 1965 and is listed on the NASDAQ, under the ticker DODGX. The Dodge & Cox Stock Fund has net assets totaling approximately $91 billion, and a total annual return of 16.13% over a ten-year period.
The largest holdings in the Dodge & Cox Stock Fund include; Wells and Fargo, Capital One, Google, Charles Schwab, Sanofi, Comcast, MetLife, and more. When investigating the best mutual funds in the UK, you may also want to know about its sector diversification.
Below, you will see how the Dodge & Cox Stock Fund is weighted, in terms of industries:
- Financials – 26.1%
- Health Care – 19.2%
- Information Technology – 18.4%
- Communication Services – 14.5%
- Energy – 8%
- Industrials 8%
The rest of this mutual fund is made up of consumer staples and discretionary, and materials. The price to earnings ratio on this fund is around 131x and shareholders can expect dividends payments in the months of March, June, September, and December. If there are any capital gains, these will be distributed in March and December. The expense ratio for this mutual fund is 0.52%.
Best Place to Invest in Mutual Funds UK
Although we listed the best places to invest in mutual funds earlier, you will see a full review of each provider below. This should assist you in making your final decision. Core considerations that have been made focus on supported funds, fees and commissions, minimum investment requirements, and accepted payment methods.
1. eToro – Overall Best Place to Invest in Funds UK
eToro provides traders of all skill sets with a safe investment environment. This is because the platform is approved of and regulated by the FCA, ASIC, CYSEC, and the SEC. The broker is also covered by the FSCS in the UK. There are thousands of markets at eToro and you can invest in stocks and ETFs on a commission-free basis.
The minimum investment and deposit are just $50, which is around £36. Credit/debit cards, e-wallets, and wire transfers are accepted. At eToro you can access funds from a variety of sectors and markets, One of the most popular funds at present is the iShares Asia-Pacific Dividend UCITS (IAPD). This has an expense ratio of just 0.59% and includes 50 stocks from eligible Asia-Pacific countries, covering sectors such as financial services, utilities, and real estate.
Alternatively, you could access Chinese stocks via the iShares China Large-Cap ETF. The expense ratio on this fund is just 0.74%. There are plenty of other options here that cover US and UK funds and equities, such as the Vanguard Value, SPDR S&P 500, Vanguard Total Stock Market, and iShares FTSE 100 UCITS. Looking for a fund that offers regular cash flow? If so, you will find the iShares Core Dividend Growth ETF, featuring stocks with consistently growing dividends.
A stand-out feature at eToro is Copy Trading. If you’ve never heard of this, it enables you to invest in someone and copy their trades passively. For instance, imagine you invest £1,000 in CopyMyFunds246. They place a buy order on the iShares Core Growth Allocation ETF, risking 20%. In your own portfolio, you would also see an investment in the same ETF for £200 (20% of £1,000). This allows you to invest and trade in a completely passive nature.
67% of retail investor accounts lose money when trading CFDs with this provider.
2. Capital.com – Trade Funds at 0% Commission
Capital.com is also heavily regulated, with licenses coming from the FCA, NBRB, ASIC, and CySEC. An important thing to note about this broker is it deals in CFDs. Contracts for Differences track the underlying fund or asset, in real-time. This enables you to trade funds in either direction, based entirely on your speculation surrounding its perceived rise or fall in value.
Put simply, place a buy order if you think the fund will see a price increase and a sell order if you think it will fall. This platform allows you to trade tons of ETF CFDs with 0% commission. As such, you won’t be investing in a fund directly. Instead, you are trading its short-term price movements.
If you find an ETF CFD you like at Capital.com, you can leverage your trade with up to 1:5, meaning you can multiply your stake by 5 when placing an order. Leverage also increases your losses, so be mindful of that before utilizing it. The minimum deposit is £20 and you can opt for an e-wallet or a credit/debit card. The broker will also support deposits via wire transfer, but you must fund your account with a minimum of £250.
78.77% of retail investor accounts lose money when trading CFDs with this provider.
3. AvaTrade – Invest in Funds via Leveraged CFDs
AvaTrade is regulated in numerous jurisdictions and is another broker that allows you to trade funds via leveraged CFDs. You can leverage your trading position by up to 1:5, potentially turning a £100 position into £500. You can speculate on a range of funds via CFDs whilst paying 0% commission. This guide found that there aren’t as many funds here as the other brokers on our list.
Nevertheless, some of the top ETF CFDs listed at AvaTrade include the Energy Select Sector SPDR Fund, the VanEck Vectors Gold Miners ETF, MSCI Emerging Markets Index, and the Financial Select Sector SPDR. If you sign up with MT5, you can link your AvaTrade account to access additional markets.
Not only that, but the third-party trading platform allows you to utilize various tools to help you make trading decisions, such as live price charts and technical indicators. AvaTrade allows you to finance your account with credit/debit cards and e-wallets. Wire transfers are also supported but can take several working days to land in your trading account. The minimum deposit is a little higher here at £100.
Trading CFDs and FX Options entail risk and could result in the loss of your capital.
How to Invest in Mutual Funds UK: Picking the Best Mutual Funds
As we touched on, there are hundreds of mutual funds available, which makes finding the best option even more time-consuming. We have saved you some leg work by listing the best mutual funds above. We also reviewed the best platforms that will enable you to invest and trade in safety.
Are you still making your mind up? If so, follow this quick checklist, to guide you in picking the best mutual funds in the UK.
As is evident from our list of options today, when you invest in mutual funds in the UK, there is a market for everyone.
- If you are interested in technology, you could invest in the Fidelity Select Software & IT Services Portfolio Fund – featuring 68 holdings, including Microsoft, Adobe, and Google
- People who would like a diverse portfolio of stocks from around the globe might invest in the Vanguard International Growth Investor Fund. Holdings include stocks from various emerging markets, as well as those in Europe, North America, the Pacific, and the Middle East
- In China, the economy is growing at a rapid rate. If this is something you would like to be a part of, you could opt for Matthews China Investor Fund
Other funds target specific locations, for instance, the UK or Canada. Many people who invest in mutual funds in the UK look for portfolios that concentrate on large-cap US stocks. Bearing this in mind, before you risk any money and place an order, consider your financial goals and conduct your own research.
There is risk involved with any investment. As such, when you invest in mutual funds in the UK, you run the risk of making a loss on your initial purchase. Some funds carry a higher risk of loss than others, largely down to volatility. For instance, Matthews China Investor Fund is considerably riskier than the Fidelity Select Software & IT Services Portfolio, which focuses on the most successful US tech stocks.
Research the potential risk you face before you invest in mutual funds. You could consider the option of ETFs, which, as we explained, can also be traded as leveraged CFDs.
Studying the past performance of a portfolio will help you decide which mutual fund to invest in. For instance, one of the oldest mutual funds is the Dodge and Cox Stock offering. It was founded in 1965, so to date there is over 56 years’ worth of data to view.
Here’s what we found out:
- At the start of December in 1991, the Dodge and Cox Stock Fund was trading at $44.85
- By 1st Jan 2005, the price was $127, which is an increase of 183%
- Fast forward to 1st February 2009, this mutual fund was valued at $58.17 per share
- By 1st September 2018, a share in the Dodge and Cox Stock Fund was $214
- On April 1st, 2020, a share in this mutual fund would have cost $153
This may seem like a lot to take in before you elect to invest in a mutual fund. However, the data surrounding the previous performance of a portfolio can give you an indication of its strengths and weaknesses.
Income or Capital Gains
There are two common ways to receive a cash flow from mutual funds – dividends and capital gains.
- When a mutual fund removes stocks for rebalancing purposes, the profit made as a result of this is referred to as capital gains
- Many mutual funds distribute the gains made from liquidating a holding to its shareholders
- Dividends are paid to shareholders annually or quarterly by some mutual funds
- The mutual funds that distribute dividends will only do so if the companies within the portfolio pay them
If you are keen to invest in mutual funds but would like to receive payments as well, the previously mentioned Dodge & Cox Stock portfolio pays both.
When you are learning the ins and out of how to invest in mutual funds in the UK – be mindful of the expense ratio. This is a fee charged to shareholders by the fund manager for annual operating expenses. If the fund stipulates an expense ratio higher than 1%, this is considered quite high.
How to Invest in Mutual Funds UK – Detailed Walkthrough
To get started and invest in mutual funds in the UK, you need to create an online brokerage account. It’s important that the platform is economical with fees and is approved by at least one regulatory body, such as the FCA.
Step 1: Open a Trading Account
Visit the eToro platform and sign up to create an account. After clicking ‘Join Now’, you can tell the broker a little bit about yourself. Complete information such as a username and password you want to use moving forward. As well as your first and last name, phone number, and email address. You can also complete information like your address, date of birth, and nationality.
Finish creating an account by completing the ID validation process. This is simple and involves attaching a government-approved photo ID and something along the lines of a bank statement (dated within 3 months). Of course, the information on your documents must match up with the name and address given in the previous step.
67% of retail investor accounts lose money when trading CFDs with this provider.
Step 2: Add Investment Funds
Financing your account to invest is super simple at eToro. Click ‘Deposit’ to reveal the pop-up box seen below. Next, select a deposit method.
- Credit/debit cards issued by Maestro, Visa, Diners Club, or Mastercard
- You might also finance your account using an e-wallet from PayPal, Skrill, WebMoney, or Neteller
A wire transfer is also a possibility here, but the platform states this can take between 3 and 7 business days.
The minimum deposit is $50 and you will need to pay 0.5% of your deposit to swap GBP for USD
Step 3: Search for a Fund to Invest in
As you can see, we want to invest in the iShares Core Growth Allocation. The ticker for this is AOR. If you know the ticker for your chosen fund, you can type it in the search bar.
Alternatively, just enter the full name. When you see your desired investment, click ‘Trade’.
Step 4: Confirm Fund Investment
After hitting ‘Trade’, you will be presented with a box like the one seen below. First, make sure it is the correct ticker. For instance, if you were looking for the iShares Asia-Pacific Dividend UCITS fund, you would see ‘BUY IAPD’ at the top instead.
Add the amount you wish to invest. The minimum is $50, which could result in a fractional investment as the fund is trading at $57.29 at the time of writing. Once you are happy to complete your order, click ‘Open Trade’ or ‘Set Order’. As we mentioned, this will depend on whether the market is open or closed when completing your investment.
How to Invest in Mutual Funds UK – Conclusion
In this guide, we’ve offered an overview of the best mutual funds in the UK. To get started with an investment, you will need to create an account with a regulated and established brokerage.
eToro is a member of the FSCS, holds a license from multiple regulators including the FCA, and offers 0% commission on a range of funds and stocks.
The minimum investment amount stipulated by this broker is just $50, which translates to around £36. You can finance your investment with everything from e-wallets like PayPal to credit/credit cards, and bank transfers.
eToro – Best Platform to Invest in Funds UK