Investing in funds: the basics

Thinking of investing? Here’s what you need to know about funds

You know the saying 'don't put all your eggs in one basket'? That's what you're trying to achieve when you invest in funds. Funds allow you to invest in more than one asset at once.

You'll hear the word 'asset' a lot in investing. An asset is anything with monetary value, such as shares in a company, gold or property, for example. 

So rather than putting all your money into company shares or property, for example, you're pooling your money with other investors and putting it into a fund that could be made up of shares and property (and other assets as well).

It's not guaranteed: investments can go down as well as up and you could get back less than you invested. 

With funds, you're trying to achieve diversification with your investments – so, for example, if one company's shares go down, another company's might remain stable or even go up.

Lots of baskets for your very important eggs. 

What are funds made up of?

Each fund is made up of a few different assets. Here are the most common.


Buying a share is like buying a tiny piece of a company. If the value of the company goes up, so does your share. If it goes down – you guessed it – so does your share. 

Bonds (also known as gilts, if it's a UK Government Bond)

Think of a bond as an IOU. When a government or company wants to raise money, they might 'issue a bond' – effectively asking for a loan in the financial markets. Investors give them that loan, and are paid interest on a regualr basis, as well as the capital of the bond when it matures.

Money Markets/Cash

Investing in cash involves purchasing a money market mutual fund, buying a Treasury bill, or opening a money market account at a bank. Money market investments are generally low risk, but tend to be also lower return. There is also the potential that inflation will reduce the purchasing power of cash.


Property can be good to include in a portfolio as it pays an income and there is the potential for capital growth from the value of the property. Your money may be invested in commercial or residential property (or both). Property can take longer to sell than other assets, so there may be a delay, and in some cases of up to six months, if you want to move your money out of a property fund.

How are funds managed?

You've got two choices when it comes to how your funds are looked after – actively or passively. 

Actively managed funds

Actively managed funds are looked after by a fund manager who makes all the investment decisions. They'll monitor the market and decide what to invest in or when to buy and sell assets, aiming to outperform an investment benchmark or index. For example, a fund that invests in UK company shares will be aiming  to outperform the FTSE (Financial Times Stock Exchange) All-Share Index®.

Why choose an actively managed fund?

  • The human touch: the benefit of a fund manager's judgement and expertise
  • Flexibility with investments 
  • Potential for higher returns than the benchmark

Passively managed funds

In comparison, the fund manager of a passively managed fund or index fund aims to replicate the performance of an index, such as the FTSE (Financial Times Stock Exchange) All-Share Index®, rather than outperform it. The way a passive fund is managed won't change, no matter how it performs. 

Why choose a passively managed fund?

  • Usually lower charges
  • Track the performance of the benchmark

How do you invest in funds?

To invest in funds, you'll need to use an investment platform (it's like a supermarket, but instead of buying food, you're shopping for funds). Aviva's investment platform offers four ways to select the funds you want to invest in. 

Universal Retirement Fund

Our Universal Retirement Fund is designed to give you a simple way to save for retirement, with pension investments you don’t have to manage. Your mix of investments at the start will be based on the time until you retire. As retirement approaches, we’ll automatically change them so they’re typically less risky. You also have the freedom to choose how you take your pension benefits when the time comes. 


Ready-made funds are a good option if you're new to investing because they do the hard work for you. All you have to do is choose how risky you want to be with your investments and you'll be presented with a portfolio made up of funds to match that risk level. Aviva keeps it simple with four risk levels: Lower, Lower to Medium, Medium to High and Higher.

Experts' shortlist

Some platforms offer a shortlist created by experts that you can pick your funds from. It's essentially a list of best-buys: funds that fund managers think will perform well.

Shortlists are a good option if you want more control over the individual funds you're investing in, but don't want to plough through everything available. It's worth noting that though they're picked by those in the know, there's no guarantee that funds in the experts' shortlist will perform any better than those in the full range.

At Aviva we monitor the funds in the experts' shortlist on an ongoing basis to ensure the funds continue to meet our selection criteria.

The full fund range

It's possible to build a bespoke portfolio by choosing from all the funds that Aviva has to offer. Sounds daunting? Usually an option for confident investors.  

Growth or income?

Although some funds try to achieve a mix of both income and capital growth, others will only focus on one thing; growing or generating an income. Which approach you choose depends on your financial goals and future plans.

Ask yourself this: are you in a position to leave your money alone for a while in the hope that it grows as much as possible, or would you rather get some money back regularly? If it's the former, you should look at growth funds; if it's the latter, it might be better to focus on income funds.

ESG investing – profit with purpose?

Environmental, social and governance (ESG) investing looks at companies that aim to do good by the planet, society, and the people they employ to work for them. Although profit is still high on the agenda when it comes to ESG, a shift towards sustainability has meant performance isn’t the only objective. You can find out more about ESG investing here.

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