How to choose a fund

Investing in funds can be a smart way to grow your wealth over time, but it’s important to make informed decisions to ensure your investments align with your financial goals and risk tolerance. In this blog, we’ll explore the key factors you should consider when choosing and funding an investment. 

Propelle does not provide investment advice and this information is for educational purposes only. Nothing said in this blog is to be understood as a recommendation.

Your Risk Appetite

Before diving into any investment, it’s crucial to assess your risk appetite. Your overall appetite to risk depends on various factors, including your age, financial situation, and investment goals. It’s worth noting that risk tolerance and risk capacity are different things. Risk tolerance is how much you can handle Ask yourself:

• How much risk are you willing to take to achieve higher returns?
• How would you react to a significant drop in the value of your investments?
• Are you investing for the short term or the long term?
  

Understanding your risk appetite will help you narrow down the types of funds that are suitable for you. For instance, if you have a low risk tolerance, you might prefer bond funds or conservative mutual funds. Conversely, if you can handle higher risk, you might opt for equity funds or sector-specific funds. As with all investments, funds also come with a level of risk and it’s important to select one that is inline with your risk appetite.

Your Values and Preferences

Your personal values and preferences can play a role in your investment choices. Consider the following:

• Do you prefer to invest in socially responsible or environmentally friendly funds?
• Are there specific industries or sectors you want to avoid or support?
• Do you have any ethical considerations that you want to guide your investments?

Many fund providers offer socially responsible investments (SRI) or environmental, social, and governance (ESG) funds that align with various values and ethical standards. Choosing funds that resonate with your values can provide a sense of satisfaction alongside financial returns.

The Fund’s Aim and Strategy to Make Money

Each fund has a specific aim and strategy to achieve its financial objectives. It’s essential to understand:

• The fund’s investment objective (e.g., growth, income)
• The types of assets the fund invests in (e.g., stocks, bonds, property etc)
• The geographical focus (e.g., domestic, international, emerging markets)
• The strategy used to generate returns (e.g., active vs. passive management)

A fund’s prospectus or fact sheet typically provides detailed information about its goals and strategies. Make sure these align with your investment goals and risk tolerance.

Some goals might be longer term, while other are shorter term. This impacts your investment decision, as longer term goals allows for your money to be invested for longer and to potentially ride out the market fluctuations.

The Fund Provider

The reputation and reliability of the fund provider are important considerations. 

Choosing a reputable and experienced fund provider can give you confidence that your investments are in good hands.

At Propelle we work with the following fund providers Vanguard, BlackRock and HSBC, all are reputable and experienced. 

The Fees and Charges

Investing in funds comes with various charges that can impact your returns. Key charges to look out for include:

• OCF (Ongoing Charge Fee): This is the overall fee that should include all of the below fees.
• Management fees: Ongoing fees paid to the fund manager for managing the fund.
• Fund fees: Ongoing fees to the fund provider for providing the fund.
• Performance fees: Fees based on the fund’s performance.
• Entry and exit fees: Fees charged when you buy or sell shares in the fund.
• Contribution fees: Fees charged when you contribute into your fund.
• Other operational expenses

It’s important to compare these costs across different funds. Higher fees can eat into your returns, so look for funds with reasonable charges that still meet your investment criteria.

At Propelle we focus on transparency and making sure that all fees and charges are transparent and easy to find. That’s why we’ve decided to always display a single fee (0.7% for our traditional and ESS funds and 1.1% for our Shariah fund). This fee includes both our fee and the fund managers fee.

You have to note that transaction fees will always apply on top. This is a fee that the fund provider charges when they have to buy or sell units of your fund. It’s a very small fee that ranges from 0.01%-0.06% depending on the provider and your trades. This will be the case whether you have a pension and ISA or another investment.

Performance (Past performance is no indication of future success)

While past performance can provide some insight into a fund’s track record and potential , it’s not a guarantee of future results. When reviewing a fund’s performance:

• Look at long-term performance (e.g., 5-10 years) rather than short-term results..
• Compare the fund’s performance to its benchmark and peers (i.e. you want to know how it performs vs other similar funds).
• Consider the consistency of returns over various market conditions. 
• Consider the volatility (ie how much the price of the fund moves around over time.

Remember, a fund that has performed well in the past may not continue to do so in the future. Focus on the fund’s strategy, management, and underlying assets rather than solely on past returns.

A Breakdown of the Holdings and Geographies

Understanding what a fund invests in and where those investments are located can give you a clearer picture of the potential risks and rewards. Look at:

• The top holdings: The investments that most of the money in the fund goes into
• Sector allocation: How the fund invests money across different sectors.  (e.g., technology, healthcare).
• Geographic allocation: How the fund invests money across different  regions and countries.

This information helps you understand the diversification and exposure of your investments whether that be to particular sectors or regions.  A well-diversified fund can reduce risks and enhance potential returns.

In summary, choosing and funding an investment requires careful consideration of your risk appetite, values, the fund’s objectives and strategies, the provider’s reputation, associated charges, performance history, and the fund’s holdings and geographical distribution. By taking the time to evaluate these factors, you can make informed decisions that align with your financial goals and preferences.

When you invest, your capital is at risk.

Propelle (Network) Ltd is an appointed representative of RiskSave Technologies Ltd, which is authorised and regulated by the Financial Conduct Authority (FRN 775330). Propelle (Network) Ltd is a company registered in England and Wales with company number 12106229. Registered office 36 Scotts Road, Bromley, England BR1 3QD, United Kingdom. Propelle (Network) Ltd can be found in Financial Conduct Authority Financial Services register under FRN 1003251.