What are the 2 types of investment?
- Direct investment
- Indirect investment
What is Direct investment?
Where an investor personally buys shares in a company.
What is Indirect investment?
Where an investor buys a stake in a company when investing in an investment fund.
What do Collective Investment Schemes (CIS) do?
Pool resources of a large number of investors with the aim of pursuing a common investment objective.
What are the benefits of pooling resources?
- Economies of scale
- Diversification
- Access to portfolio manager
- Benefit of regulatory oversight
- Tax deferral
- Access to geographical markets, asset classes or investment strategies not available to individual investors.
Why is it important to have a diverse portfolio?
Share prices can fall as well as rise. Therefore, to offset the losses of bad companies, it’s important to invest in a range of different companies to lessen risk.
What is an issue with having a diverse portfolio?
It’s expensive, e.g. £3k into 30 companies is £100 per investment.
If you have less capital, why should you invest in an investment fund?
- Pooled resources brings down proportion of commissions.
- Exposure to greater number of companies for the same £3k investment.
Where can you invest your capital to achieve greater diversification?
- Property
- Asset classes
- Mix of cash and other assets
- Sectors
What do Fund Managers do?
Follow their chosen market and carefully consider what to buy and whether to hold or sell.
What fees may Fund Managers charge?
- Entry/Initial fee
- Exit fee
- Annual management fee
What are fees used for?
- Salary
- Tech
- Research
- Profit
- Their dealings
- Settlement
- Risk management systems
Are Fund Managers profitable?
No guarantee that they’ll be profitable or outperform other funds.
