Investment companies are a type of collective investment fund. All collective investment funds have some benefits in common. In the next section we look at the special features of investment companies.
All types of collective investment funds, including investment companies, give you:
- economies of scale
When you buy shares you have to pay dealing costs and admin fees, which can eat away at the value of your investment. In an investment company, all the investors pool their money and split the admin costs. You can end up paying much less.
- a way to spread your risk
Each investment company owns shares in a range of investments, so buying shares in only one investment company effectively gives you a diversified portfolio. As you are not dependent on the success of just one or two investments, this spreads your risk.
- a professional manager’s expertise
Each investment company uses professional management expertise.
- a chance to invest small amounts
You can invest small lump sum amounts or even invest monthly. Most companies are available through savings schemes run by their managers, some of which start from as little as £20 a month.
Put all these benefits together and you find that collective investments are an effective and efficient way to invest in a diverse range of assets.