Best Mutual Funds UK 2020

By investing in a mutual fund, your chosen provider will buy and sell assets on your behalf. This might consist of stocks, bonds, or a mixture of the two. Either way, mutual funds allow you to invest in a 100% passive nature, which is particularly ideal if you have little to no knowledge of how the financial markets work.

The key problem is knowing which mutual fund to invest in. After all, there are hundreds of options available in the market – each of which will come with varying risk levels.

In this guide, we unravel the best mutual funds on offer in the UK. We’ll also give you a bit of background on how mutual funds work and what you need to do to make an investment from the comfort of your home.

Top 5 Mutual Funds UK

Below you’ll find an overview of our top five mutual fund picks of 2020.

  1. Vanguard U.S. Equity Index Fund – Highly Diversified Basket of US Stocks
  2. OHCM UK Equity Income Fund – Focus on Dividend-Paying UK Stocks
  3. Vanguard Global Balanced Fund – 64% Stocks and 31% Bonds
  4. Fidelity UK Smaller Companies – Invest in Small-Cap UK Stocks
  5. Fundsmith Equity – Top-Performing Mutual Fund (49% Gains in 3 Years)

Best Mutual Funds of 2020 – Our Picks

There are many considerations that you need to make when choosing a mutual fund that meets your investing goals. For example, are you looking for a fund that invests purely in UK stocks, or are you also looking to gain exposure to bonds? Similarly, you need to ask yourself how much risk you wish to take. In doing so, this will likely have an impact on how much you can make from your mutual fund investment.

Taking all of this into account, below you will find five of the best mutual funds available to UK investors in 2020.

1. Vanguard U.S. Equity Index Fund – Highly Diversified Basket of US Stocks

Vanguard is a market leader in the global fund space, with over 30 million investors under its belt worldwide. In the UK market, the provider offers a popular mutual fund that gives you access to US stocks. In fact, by investing in the Vanguard U.S. Equity Index Fund, you’ll be buying an asset basket that consists of over 3,400 equities.

At the time of writing, the fund is heavily weighted on Apple (6%), Microsoft (4%), and Amazon (4%). After that, the fund has capital allocated to major brands like Google, Tesla, Visa, and Berkshire Hathaway. With this that being said, the Vanguard U.S. Equity Index is also highly diversified into small-to-medium-cap stocks, which makes it one of the best Vanguard mutual funds.

Vanguard U.S. Equity Index Fund

For example, there are micro-percentage investments into Atlas Financial Holdings, Zedge, ProPhrase, and Lyra Therapeutics. Although you might not have heard of these firms, many are up-and-coming entities that have the potential to one day make it big. If you like the sound of this particular Vanguard fund, there are several ways to invest.

For example, you can go directly with the provider by meeting a £500 minimum investment, or commit to direct debit of at least £100 per month. If you want to invest with smaller amounts, there are several FCA brokers active in the online space that can facilitate this. For example, Hargreaves Lansdown has an account minimum of just £100.

Your capital is at risk.

2. JOHCM UK Equity Income Fund – Focus on Dividend-Paying UK Stocks 

JOHCM UK Equity Income Fund is a mutual fund that focuses on dividend-paying companies listed in the UK. This will allow you to generate a passive flow of income through quarterly payments. The stocks held by the mutual fund not only consist of large-scale companies but also firms listed on the wider FTSE All-Share Index.

JOHCM UK Equity Income Fund

This ensures that you are diversified across several risk matrixes. In terms of its major holdings, the fund has allocated 5.6% to BP, 4.2% to Barclays, and 4.2% to Tesco. After all, you have the likes of Rio Tinto, Anglo American, and Glencore. Although this fund has performed well in recent years, it must be noted that the fees charged by JOHCM are on the pricey side.

For example, there is an initial charge of up top 5%, and an annual maintenance fee of between 0.75% and 1.25%. Furthermore, if the mutual fund outperforms the benchmark index it is tracking, there is a 15% performance fee. This shouldn’t put you off per-say, as it means the fund is financially motivated to make you more money than a conventional index fund would pay.

Your capital is at risk.

3. Vanguard Global Balanced Fund – 64% Stocks and 31% Bonds 

If you’re looking for a blend of stocks and bonds, it might be worth considering the Global Balanced Fund offered by Vanguard. The equity/bond split on offer comes with a sensible risk rating of 4 and of 7 – as per Vanguard. Breaking the fund’s portfolio down, it currently has just 85 stocks.

Although this is less diversified than the previously discussed U.S. Equity Index Fund, there is a good split of markets and industries being targeted. For example., while 61% is held in US stocks, the balance is split between companies operating in Europe, Asia-Pacific, and the emerging markets.

Vanguard Global Balanced Fund

This covers multiple sectors, including but not limited to industrials, health care, technology, consumer goods, oil and gas, and utilities. Furthermore, Vanguard has weighted its stock portfolio conservatively to ensure it is not overexposed to a particular company.

For example, the largest holdings consist of Cisco Systems, Microsoft, and Novartis – each of which contributes just 1.94%, 1.79%, and 1.65%, respectively. When it comes to its bond allocation, the Vanguard Global Balanced Fund has over 470 instruments in its portfolio. The bonds come with an average maturity of 8.7 years and a coupon rate of 2.4%.

Your capital is at risk.

4. Fidelity UK Smaller Companies – Invest in Small-Cap UK Stocks

If you’re seeking long-term capital growth, you might want to consider the Fidelity UK Smaller Companies mutual fund offered by Fidelity. As the name suggests, this particular fund will focus exclusively on small-cap UK stocks. In the vast majority of cases, this means that you will be investing in firms listed on the AIM (Alternative Investment Market).

Fidelity UK Smaller Companies

For those unaware, the AIM is the UK’s secondary stock exchange and it consists of smaller companies that are yet to reach the primary London Stock Exchange. This might be because the company has a small market valuation or because it is at the very start of its corporate journey.

Either way, the Fidelity UK Smaller Companies mutual fund does come with added risks, as you are investing in firms that potentially have unproven business modes. On the flip side, its basket of shares current contains 99 firms across a variety of sectors. In terms of its main holdings, this mutual fund has 3.5% in Serco, 3.0% in John Laing, and 2.7% in Ultra Electronics.

Your capital is at risk.

5. Fundsmith Equity – Top-Performing Mutual Fund (49% Gains in 3 Years)

The Fundsmith Equity mutual fund is well known in the UK investment space. This is because the fund has performed incredibly well since its inception in 2010. Led by Terry Smith, investors have been treated to returns of over 49% in the past three years alone.

Fundsmith Equity

Although the fund is tailored to the UK market, most of the stocks held by Terry Smith are US-based. This includes major brands such as Facebook, Microsoft, and Paypal. Smith attempts to take a balanced approach to investing, insofar that his portfolio will cover stocks from multiple sectors. However, the main objective is to focus on long-term growth.

Although the fund has outperformed the wider markets in recent years, it must be noted that the Fundsmith Equity mutual fund is yet to encounter a bearish market. This is will be a major test for Terry Smith, as backers will want to know how he intends on defending invested money when the markets move in the wrong direction.

Your capital is at risk.

What Are Mutual Funds UK?

What are mutual funds?Mutual funds are offered and managed by investment houses. They allow investors of all shapes and sizes investment in the financial markets in a passive manner. This is because the fund will determine which stocks and bonds to buy on your behalf, and when to sell them.

This makes UK mutual funds investment attractive to those that have little investment experience. You won’t be the only person investing with a mutual fund. On the contrary, leading funds typically have thousands of investors under their belt. This results in a huge pool of funds that often runs into the billions.

Not only does this give the mutual fund in question greater purchasing power, but it allows the provider to access difficult to reach markets. There are many types of mutual funds available to UK investors. For example, while some focus exclusively on stocks, other target bonds. Some funds will hold a mixture of the two.

Crucially, mutual funds are different from traditional ETFs or index funds – as they are actively managed. In simple terms, this means that rather than tracking an index like the FTSE 100 and Dow Jones, the fund will look to outperform the wider markets. In turn, mutual funds investment platforms typically charge higher fees.

How do Mutual Funds Work in the UK?

The actual process of investing in a mutual fund is relatively simple. Once you have chosen a fund that you like the look of, you will be required to invest a lump sum. The minimum amount will vary depending on the provider and whether you go direct or use a third-party broker.

  • For example, while most Vanguard funds require a minimum investment of £500, Hargreaves Landsdown allows you to invest from just £100.
  • If you opt for an ETF as opposed to a mutual fund, the minimums are even lower. For example, eToro allows you to invest form just $50 – which is about £40.

The other option that you have available is to commit to a direct debit. For example, you might elect to invest to £100 at the end of each month. Either way, once you have invested in a mutual fund, there is nothing more for you to do. That is to say, you will be paying an annual maintenance fee for the provider to make all investment decisions on your behalf.

How do Mutual Funds Make Money?

When you invest in a UK mutual fund, the provider will purchase a basket of assets. Depending on the types of assets chosen, you stand the chance of making money in two forms. Firstly, if the value of the assets increases over time, as will your investment. Secondly, if some of the assets yield income, you’ll earn regular payments via stock dividend and/or bond coupons payments.

Let’s explore how you make money from a mutual fund in a bit more detail.

Net Asset Value

In simple terms, the net asset value (NAV) refers to the total market value of the assets held by the mutual fund. For example, if the fund held £100 million worth of BT stocks and £200 million worth of corporate bonds, then the NAV would amount to £300 million.

Of course, the mutual fund will likely hold hundreds of assets within its portfolio, albeit, the concept remains the same. In other words, the NAV can be calculated by taking the current market value of each asset, multiplied by the number of instruments held. This calculation will directly impact the amount of money that you can make from a mutual fund investment.

For example:

  • Let’s suppose that you inject £4,000 in a UK mutual fund that buys FTSE 100 shares
  • When you invest, the fund has a NAV of £500 million
  • In theory, this means that the total value of all FTSE 100 shares held by the fund is worth £500 million at the time of the investment
  • Over the course of the year, most of the shares held by the fund have increased in value
  • In turn, the NAV now stands at £550 million – representing an increase of 10%

You initially invested £4,000 into the mutual fund, meaning that you are £400 in profit. As such, were you to cash out your investment, you would receive £4,400.

Income Distribution

On top of growing your money via an increased NAV, most mutual funds in the UK will distribute dividends.

This usually derives from:

  • Dividends paid by companies that the mutual fund has invested in
  • Coupon payments yielded from bond investments
  • Profits made by buying and selling assets

The good news is that most mutual funds will distribute your share of the above on a quarterly basis. This allows you to grow your investment faster, as you can re-inject the dividends back into the fund.

Let’s look at an example of how mutual fund dividends work.

  • Sticking with the same example as above, you invested £4,000 into a mutual fund that buys FTSE 100 shares
  • During the quarter, the fund has generated an income of 1.5%
  • This consists of stock dividends and bond coupon payments
  • As you have £4,000 invested, this means that you will receive £60

If you have invested in a mutual fund via a broker, then the dividends will be paid to your cash account. You can then withdraw the money back to your bank account or reinvest it. If going direct with the mutual fund provider, the cash will likely be transferred straight into your bank account.

Different Types of Mutual Funds

There are heaps of mutual funds to choose from in the UK. As we have noted, each mutual fund will deploy a specific strategy with the view of outperforming the wider markets. In most cases, mutual funds can be split into four categories, which we explain in more detail below.

Bond Mutual Funds

This particular mutual fund will allocate 100% of its funds into bonds. This might include:

  • Corporate bonds
  • Municipal bonds
  • Government bonds

The mutual fund might invest all of its cash into a specific bond type like corporate bonds. But, in most cases, it will take a more balanced approach by investing in both corporate and government/municipal bonds. Each bond mutual fund will come with its own risk rating, too.

bond mutual funds

For example, a super-low risk mutual fund would only hold government securities like UK Gilts or US T-Bills. At the other end of the spectrum, a mutual fund that seeks to target higher returns for investors might hold higher-risk corporate bonds or government bonds from the emerging markets.

Equity Mutual Funds

This particular mutual fund will only invest in traditional stocks and shares. The equities must be listed on a public stock exchange, such as the LSE, NYSE, or NASDAQ. There are many approaches that an equity mutual fund might take, such as:

  • Attempting to outperform an index like the FTSE 100 or Dow Jones
  • Focus on strong and stable blue-chip stocks
  • Invest in small-to-medium companies for long-term growth
  • Concentrate solely on dividend-paying stocks

In some cases, the mutual fund might take a much broader approach to investing by purchasing stocks across several marketplaces. For example, it might opt for a blend of UK blue-chip stocks and AIM-listed firms. Or, it might look to invest in companies listed in multiple countries.

Balanced Mutual Funds

Put simply, a balanced mutual fund will invest in both stocks and bonds. The specific split will carry vary considerably. For example, you might find a balanced mutual fund that holds 80% in stocks and 20% in bonds. At the other end of the spectrum, a lower risk portfolio might consist of 10% in stocks and 90% in bonds and government securities.

Money Market Mutual Funds

Money market mutual funds are a good option for those of you that wish to protect your money from the threats of inflation or economic hardship. This is because the mutual fund will only invest in super-high grade assets.

money maker mutual funds

In particular, this will likely include government securities issued by the US, UK, Japan, or Europe. Additionally, a money market mutual fund will typically focus on instruments that will be converted into cash in the short-term.

Ultimately, this type of mutual fund is not condusive for long-term growth. On the contrary, yields often sit within the 1-2% range.

What are the Benefits of Investing in a Mutual Fund?

Mutual funds investment won’t be for everyone – especially if you enjoy the thrill of stock trading on a DIY basis. With that said, the best mutual funds are often the go-to avenue for investors that are looking to grow their money while at the same time – putting in little effort.

Below you’ll find some of the main benefits of investing in a mutual fund.

Diversification at the Click of a Button

When you invest money into a mutual fund, your portfolio will often consist of hundreds of different assets. Whether its stocks and/or bonds – the fund will often expose you to several markets, economies, and sectors with the view of deploying a diversified strategy.

This can be achieved through a single investment, which is highly beneficial for risk-averse individuals with little time on their hands. In other words, personally selecting 100+ stocks and bonds to invest in would not only be time-consuming, but costly when you consider brokerage fees.

Passive Investment Stream

As we have noted throughout our guide, UK mutual funds are passive. Once you select a fund that you like the look of, you simply need to choose an amount to invest. After all, the fund will make all investment decisions on behalf of its investors.

For example, the provider will personally select which assets to purchase, and how much of the portfolio should be allocated. The provider will also decide when the time is right to sell the asset in question.

Great for the Average Joe Investor

If you are an ‘Average Joe’ investor – meaning that you have no knowledge of how to pick stocks, then mutual funds investment is likely to be of interest. This is because the investment decision that you need to make is with regards to your chosen fund provider.

Crucially, this means that you do not need to learn the ins and outs of how to research companies, interpret earnings reports, or evaluate technical pricing trends. On the contrary, this role is reserved exclusively for the mutual fund.

Access Markets Reserved for Institutional Investors

There are hundreds of FCA-regulated share dealing accounts that give you access to UK and international markets. This is great for those of you that seek to invest on a DIY basis. However, there is a plethora of asset classes and investment opportunities that you as a retail trader will not be able to access.

ftse japan fund

At the forefront of this is the bond market. For example, it’s extremely difficult to buy corporate bonds unless you have the capacity to meet a 5 or 6-figure minimum investment.

It’s even more challenging when it comes to accessing high-growth government bonds issued by foreign countries. With that said, mutual funds and ETFs are large-scale financial institutions with billions of pounds in capital. As a result, they have access to any market of their choosing. This is yet another reason why shred investors will opt for a mutual fund.

Low Fees and Minimum Investments

In a time not so long ago, investing in a mutual fund was not only expensive but required a huge lump sum. Fast forward to 2020 and the barriers of entry for everyday investors are no longer in place. For example, rarely do UK mutual funds charge an ongoing maintenance fee that exceeds 0.5%.

Similarly, minimum investment amounts are now in the hundreds of pounds. For example, Vanguard has a minimum of £500, while Hargreaves Lansdown is just £100. If you opt for a diversified ETF index fund at eToro, then the minimum is just $50 – and you won’t be required to pay any dealing charges or maintenance fees.

Risks and Drawbacks of Mutual Funds

While the benefits of investing in a mutual fund are plentiful, there are several risks and drawbacks that you need to consider.

This includes:

  • Risk of Loss: There is no guarantee that you will make money by investing in a mutual fund. This is especially the case when the wider markets are on a downward spiral. In fact, very few UK mutual funds made money in 2008/09. As such, had you cashed out your investment, you likely would have got back less than you started with.
  • Long-Term Only: Mutual funds should always be viewed as a long-term investment. The general rule of thumb is to avoid touching your investment for at least five years. This is with the view of riding out markets waves. If you’re looking for a short-term investing strategy, then you might need to consider CFD trading.
  • No Involvement in Strategy: As an investor of a mutual fund, you won’t have the remit to pick and choose specific assets. Instead, this is a process reserved exclusively for the fund manager. This does mean that you stand the chance of missing out on a particular investment opportunity.
  • Not as Liquid as ETFs: ETFs and mutual funds are virtually like-for-like. However, one of the key differences is that UK mutual funds are not listed on public exchanges. In turn, this can delay the process of causing out your investment. On the contrary, ETFs are publicly-traded, meaning that you can exit your position at the click of a button.

Ultimately, you just need to weigh up the benefits and risks of a mutual fund before taking the plunge.

What to Look for When Buying Mutual Funds UK

Although we have discussed five of the best mutual funds currently available to UK investors, there are hundreds of alternative options at your disposal. This can make it challenging to find a fund that is specifically tailored to your long-term investing goals.

As such, we would suggest reading through the following considerations to help clear the financial mist.

Target Market

The most important metric that you need to consider is the specific market that the mutual fund is looking to target. As an example, this might be:

  • 100% in blue-chip equities
  • 50% in large-cap stocks and 50% in small-cap stocks
  • 80% in stocks and 20% in bond
  • 100% in corporate bond

After that, you also need to make some geographical considerations. For example, does the mutual fund invest in UK assets only, or does it diversify across several marketplaces.

Past Performance

It makes financial sense to look at how the mutual fund has performed historically. More specifically, you need to look at the fund’s returns against the wider markets. For example, let’s suppose that you are thinking about investing in a mutual fund that targets large-cap UK stocks.

We’ll say that over the past five years, the FTSE 100 has grown by 15%. If the mutual fund in question has grown by just 13%, then it’s probably worth avoiding. This is because UK mutual funds will typically look to outperform the markets. After all, you are paying an ongoing maintenance fee to the provider.

Account Minimums

You also need to explore account minimums dictated by the provider. As we noted earlier, the likes of Vanguard require a lump sum of £500. If this is too much for you, then it’s worth considering an FCA stock broker. For example, Hargreaves Lansdown has a minimum investment of £100 (or £25 per month via direct debit), and eToro requires just $50 on its ETF funds.

Fees

All mutual funds investment platforms charge a fee for their services. At a minimum, this will come in the form of an ongoing maintenance charge. This is expressed as a percentage, as typically sits below 0.5%.

For example, if you invest £5,000 into the fund, at 0.5% you will pay just £25 per year. However, some of the best mutual funds active in the UK space charge more. The JOHCM UK Equity Income Fund, for example, costs between 0.75% and 1.25%.

The aforementioned fund also charges a performance fee. This means that the provider will take a percentage of any profits it makes for you. At 15%, gains of £1,000 would leave you with £850.

Risk

Providers like Vanguard utilize a matrix system that lets you how risky a particular mutual fund is. This is usual, as it allows you to select a mutual fund that mirrors your appetite for risk. In theory, the less risk that the fund takes, the less you will make. Similarly, higher risk mutual funds will look to target higher returns,

If your chosen provider does not offer a risk matrix like Vanguard, it’s fairly straightforward to evaluate this yourself. For example, a low-risk mutual fund would focus on blue-chip stocks and high-grade bonds from leading economies (e.g. the US and UK). At the other end of the spectrum, a higher risk fund would target low-grade bonds or stocks from the emerging markets.

1. eToro – Overall Best Fund Broker in the UK

eToro is one of the most online popular online brokers in the UK investment scene. In opening an account with the FCA regulated platform, you will be joining 12 million other investors. We should note that eToro does not offer mutual funds. Instead, the platform offers a wide range of ETF funds.

In simple terms, both mutual funds and ETF allow you to invest in a basket of assets in a diversified manner. Both also allow you to benefit from passive income, as your chosen fund provider will determine which stocks and bonds to invest in. With that said, the main benefit of opting for an ETF fund at eToro is that you will not pay a single fee in commission.

In fact, you won’t need to pay an ongoing maintenance fee either. Furthermore, all funds at eToro are listed on public stock exchanges. This means that you can exit your position at any given time during standard market hours. When it comes to minimum investment amounts, eToro allows you to inject just $50 (about £40) into your chosen fund. This is much less than going through the likes of Vanguard or iShares.

eToro also offers a Copy Trading feature. This innovative social trading tool allows you to select an experienced investor and then copy their trades like-for-like. You can also invest in stocks and ETFs at eToro on a DIY basis. This is ideal if you come across an investment opportunity that your fund has not considered. If you like the sounds of commission-free investing at eToro, you can get started with a deposit of just $200 (about £160). Debit/credit cards are supported and your funds are protected by the FSCS.

eToro fees:

Commission 0%
Deposit Fee Free
Withdrawal fee $5
Inactivity fees $10 a month after 12 months inactivity

 

Pros:

  • Super user-friendly online trading platform
  • Buy stocks without paying any commission or share dealing charges
  • Trade CFDs in the form of stocks, indices, commodities, forex, and more
  • 800+ stocks listed on the UK and international markets
  • Deposit funds with a debit/credit card, e-wallet, or UK bank account
  • Ability to copy the trades of other users
  • FCA and FSCS protections

Cons:

  • Not suitable for advanced traders that like to perform technical analysis

75% of retail investors lose money trading CFDs at this site

2. Hargreaves Lansdown – Best Mutual Fund Broker for Reputation

Hargreaves Lansdown is a major player in the UK investment space. The FCA broker offers a range of stocks, ETFs, investment trusts, and mutual funds. You will also have access to a plethora of UK corporate bonds and gilts. All asset classes can be invested in on a DIY basis – which you can do online, via your mobile, or over the telephone.

In term of its mutual fund offering, Hargreaves Lansdown offers hundreds of options. We like the fact that the platform offers in-depth research and insights into most of its supported funds. This will allow you to make an informed investment decision based on the data that has been put in front of you.

In terms of fees, this FCA broker does not charge any dealing charges when you invest in a mutual fund. However, you will need to pay an average ongoing charge of 0.45%. This is only reduced if you invest more than £250,000. Hargreaves Lansdown allows you to invest from just £100, or through a direct debit of £25 per month. There are no deposit or withdrawal fees, and your funds are protected by the FSCS.

Hargreaves Lansdown fees:

Commission 0.45% per year for investments less than £250k
Deposit Fee Free
Withdrawal fee Free
Inactivity fees N/A


Pros:

  • Thousands of UK and international shares supported
  • Also offers bonds, investment trusts, ETFs, and mutual funds
  • Gain access to newly launched UK IPOs
  • Easily deposit and withdraw funds without being charged
  • Industry-leading research and analysis department
  • Telephone customer support is highly rated

Cons:

  • Entry-level commission of £11.95 per trade
  • Doesn’t allow you to trade CFDs or apply leverage

3. Vanguard – Invest Directly With a Major Mutual Fund Provider

Vanguard needs no introduction in the mutual fund scene – as the provider has trillions of pounds under management for investors of all shapes and sizes. In the UK market alone, this mutual fund provider allows you to invest in 78 different funds. This includes everything from equity funds, retirement funds, bond funds, and balanced funds.

You also have the option of investing in a money maker fund if you wish to protect your wealth from falling markets. By investing directly with Vanguard, you will need to choose from a lump sum or monthly direct debit. If opting for the former, the minimum stands at £500. The latter requires a minimum commitment of £100 per month.

In terms of fees, this will vary depending on the mutual fund that you select. With that said, most of the funds at Vanguard come with a fee of less than 0.4%. This offers tremendous value when you consider what you are getting your investment. You can invest funds with a debit card or through a UK bank transfer.

Hargreaves Lansdown fees:

Commission Typically less than 0.4% per year
Deposit Fee Free
Withdrawal fee Free
Inactivity fees N/A


Pros:

  • Leading mutual fund provider
  • More than 30 million investors worldwide
  • Heavily regulated in several jurisdictions
  • 78 funds to choose from
  • No deposit or withdrawal fees
  • Ongoing charge is often less than 0.4% annually

Cons:

  • Minimum investment of £500 or £100 per month
  • No access to other asset classes like stocks

How to Invest in a Fund Today

I’ve you’ve got you heart set on making a fund investment today, we are now going to show you the step-by-step process with FCA broker eToro.

This platform allows gives you access to heaps of ETF funds – many of which are backed by Vanguard and iShares. You’ll be able to invest without paying any ongoing commissions or maintenance fees, and you can get started with just $200 ($50 per fund)

Step 1: Open an Investment Account

All online brokers require you to open an account and provide some personal information. You can do this with ease at eToro as the process takes no more than a couple of minutes.

eToro sign up

Simply enter your name, home address, date of birth, national insurance number, and contact details. You’ll also need to provide your email address and mobile phone number.

Step 2: Upload ID

You will need to have your identity verified before a withdrawal is permitted. You can do this at a later date if you do not plan to deposit more than £1,800-ish.

Either way, you’ll need to submit a copy of your passport or driver’s license, and a document that verifies your home address. This can be a utility bill or bank account statement, as long as the document was issued within the past three months.

Step 3: Deposit Funds

You will need to meet a $200 minimum deposit at eToro before you are able to invest in your chosen fund. You can choose from a debit/credit card, bank account transfer, or e-wallet. Regarding the latter, you can choose from Paypal, Skrill, or Neteller.

Step 4: Invest in a Fund

As soon as your deposit is processed, you can invest in your chosen fund. If you don’t know which fund you wish to invest in, browse the eToro ETF department.

If like us you already know the name of the fund, enter it into the search box at the top of the page.

Invest in a fund at eToro

You’ll then to click on the ‘Trade’ button.

Invest in a fund at eToro

Finally, enter the amount that you wish to invest – ensuring that you meet the $50 minimum. Once you confirm the investment, your money will remain with the fund until you decide to withdraw the proceeds out.

Invest in a fund at eToro

Conclusion

Mutual funds take the stress out of investing. You simply need to invest a lump sum, and the fund will take care of the rest. You don’t need to worry about what stocks or bonds to buy, nor do you need to evaluate market timing. All in all, this paves the way for a truly passive investment stream.

With that said, UK investors will often opt for an ETF over a mutual fund. Although both options allow you to invest in a diversified basket of assets in a passive nature, the former can be accessed commission-free when using FCA-licensed eToro. Furthermore, have direct control over your money as ETFs can be cashed out at any given time during standard market hours.

eToro – Invest in Funds with 0% Commission

75% of retail investor accounts lose money when trading CFDs with this provider.

 

FAQs

What is the difference between mutual funds and ETFs?

The main difference is that ETFs will look to passively track a specific marketplace - such as the FTSE 100 or Dow Jones. Mutual funds, on the other hand, will look to actively outperform a marketplace.

Do mutual funds pay dividends?

Yes - you are likely to receive a dividend payment from your chosen mutual fund every three months. This consist of proceeds made from stock dividends and bond coupon payments.

What is the best mutual fund for retirement?

Vanguard offers a range of mutual funds that are tasked with building a pot for the future. Depending on when you plan on retiring, your chosen fund will contain a split between bonds and stocks.

How much do mutual funds cost?

All UK mutual funds charge an ongoing maintenance fee. This is an annual percentage rate that is multiplied against the amount that you invest. Some of the best performing mutual funds will also charge a performance fee. This means that they will keep some of the profits that they make for you.

Are mutual funds risk-free?

Absolutely not. In fact, there is every chance that you will lose money. Don't forget, most mutual funds made a loss in the midst of the 2008 financial crisis.

 

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Kane Pepi

About Kane Pepi

Kane Pepi is a British researcher and writer that specializes in finance, financial crime, and blockchain technology. Now based in Malta, Kane writes for a number of platforms in the online domain. In particular, Kane is skilled at explaining complex financial subjects in a user-friendly manner. Academically, Kane holds a Bachelor’s Degree in Finance, a Master’s Degree in Financial Crime, and he is currently engaged in a Doctorate Degree researching the money laundering threats of the blockchain economy. Kane is also behind peer-reviewed publications - which includes an in-depth study into the relationship between money laundering and UK bookmakers. You will also find Kane’s material at websites such as MoneyCheck, the Motley Fool, InsideBitcoins, Blockonomi, Learnbonds, and the Malta Association of Compliance Officers.