Finance glossary
Fund
Also known as: Investment fund, Mutual fund, OEIC, Unit trust
In simple terms
A fund pools money from lots of investors and spreads it across many investments, so a single purchase gives you a ready-made, diversified mix rather than betting on one company.
On this page
What does fund mean?
An investment fund gathers money from many people and invests it as one big pot, usually across dozens or hundreds of shares, bonds or other assets. In the UK these are often structured as unit trusts or OEICs (open-ended investment companies), and “mutual fund” is the common overseas term.
Buying a fund means your money is instantly spread across everything it holds, which is a simple way to diversify without having to pick individual investments yourself.
How a fund works
Funds can be “active”, where a manager tries to beat the market and charges more for the effort, or “passive”, where the fund simply tracks an index at a lower cost. You buy units or shares in the fund through a platform, and the price reflects the value of everything it holds.
The fund’s value rises and falls with its underlying investments, so it can go down as well as up. Charges — the ongoing fund fee plus any platform fee — come out of your returns every year, so lower costs matter over the long term.
How could this affect me?
For most everyday investors, funds are the simplest way to invest: one purchase gives instant diversification, which lowers the risk of any single company sinking your money. Regular monthly investing into a fund is a common, low-effort approach.
Diversification reduces risk but does not remove it — if the wider market falls, your fund falls too, and you could get back less than you invested. Check what a fund holds and what it charges before you buy.
Things to watch out for
- A fund can fall in value if its markets fall — diversification does not remove market risk.
- Annual charges are deducted from your returns every year, so compare costs.
- An “active” fund’s past outperformance is not a guide to future returns.
- Some funds hold niche or higher-risk assets — check what is inside before buying.
Know your rights
- A firm operating or selling funds to UK retail investors must be authorised by the FCA, and its promotions must be clear, fair and not misleading.
- If an authorised UK fund provider or platform fails, FSCS may protect eligible investments up to £85,000 — this covers the firm failing, not losses from the fund falling in value.
- If you are badly advised or treated unfairly, you can complain and escalate to the Financial Ombudsman Service.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Investment funds — unit trusts and OEICs (opens in a new tab). Accessed 22 Aug 2026.
- FCA, Investing basics — funds (opens in a new tab). Accessed 22 Aug 2026.