A Beginner’s Guide to Investment Funds (Collectives)

Collectives, or pooled investments, let you invest alongside others in a single professionally managed fund. This guide explains the main types – Open-Ended Investment Companies (OEICs), unit trusts, investment trusts and Exchange-Traded Funds (ETFs) – how they work, what they cost, and how to choose which one might be right for you.

Authors:

Navisha Joshi | Andrew Lacey

Last updated: 13 November 2026

At a glance

Collectives pool investors' money into one fund, run to a stated objective, for a fee.
There are four main types: OEICs, unit trusts, investment trusts and ETFs; differing by how they're structured, priced and traded.
Learn how pricing differs for different types of collective, and why that matters.
Things to check before investing: the fund’s objective, underlying holdings, costs involved, and liquidity; all found in its Key Investor Information Documents (KIIDs).

What are collectives (pooled investments)?

A collective investment (also called a pooled investment or collective) is an investment structure where multiple investors contribute money to a single fund.

The fund then invests this pooled money according to a defined objective or theme, such as UK equities, global bonds, property-related assets, technology-themed assets or a mix of asset classes. Your money is invested and managed by a professional investment manager in return for a fee.

Why pool investments?

Investing your money into a collective investment (instead of buying a single share for instance), pooling can help investors by providing within one investment:

Diversification: Exposure to a range of holdings rather than relying on a single company, bond, or asset.
Administration and operational maintenance: For all funds, both those that are actively and passively managed, activities such as rebalancing, corporate actions, and income processing are performed by the fund manager, which can help investors save time.
Professional portfolio management: Active funds have a manager or team making day-to-day investment decisions about what to buy and sell based on their expert convictions, according to the fund’s rules. In Passive funds, fund managers don’t typically make these discretionary buy/sell decisions.
Access and operational efficiency: A pooled structure can provide exposure to markets or strategies that may be difficult or inefficient to replicate through individual holdings. For example, you cannot directly invest into an index such as FTSE 100, but an ETF replicating the index structure can be bought.

Investment decisions: who controls what is bought and sold?

In most collectives, you the investor will choose which fund to invest in, how much to invest, and when to buy or sell. The selection of underlying holdings (what asset mix makes up the fund) is typically determined by:

A fund manager (active management), or
A set of index rules (index-tracking approaches, such as with passive ETFs).

What you own, and how returns are generated

When you invest in a collective, you own units or shares in the fund. The fund, in turn, owns the underlying investments.

Returns typically come from:

Capital growth: the value of the underlying holdings rising,
Income: money the fund receives from its underlying holdings (such as dividends or interest), which is either paid out to you or re-invested.

The total return of the fund is the combination of capital growth and income (minus fees and costs). For exchange-traded structures – such as investment trusts and ETFs – the fund units (shares) trade on an exchange. This means that an investor’s returns depend on the market price of the fund, which can move differently from the value of the fund’s underlying investments. This is explained in greater detail for each investment type in the subpages ahead.

The main types of collectives

The most common types of collective investments investors will encounter in the UK are:

Open-ended funds – Commonly OEICs (Open-Ended Investment Companies) and unit trusts
Closed-ended funds – Most commonly investment trusts
ETFs – Exchange-Traded Funds

The key differences between these fund types are based on how the funds are structured, priced and traded.

Open-ended funds (OEICs and unit trusts)

Open-ended funds do not have a fixed number of shares or units. When investors want to put money in the fund issues new shares. When investors want to take money out, the fund cancels shares or units.

The size of the fund therefore expands or contracts in response to investor demand: growing when more people want to buy than sell. The change in fund size does not change the value of each unit or share. Your return still mainly comes from the fund’s underlying investments going up or down, less of fees.

The funds are traded at their Net Asset Value (NAV), which is determined based on the value of its underlying holdings. The NAV is set, and buying and selling transactions occur at the fund valuation point (usually once a day, during market close).

OEICs and unit trusts differ in the way they are structured, but in practical terms, they are similar for most investors in the way they behave.

Closed-ended funds (investment trusts)

Closed-ended funds issue a fixed number of shares that investors then trade on an exchange. The NAV for exchange-traded funds is, as with open-ended funds, based on the value of the underlying holdings. However, the share price of a closed-ended fund – such as investment trusts – is driven by market supply and demand. The fund can therefore trade above its NAV (at a premium) or below (at a discount), according to how much investor demand there is at the time. When you invest in an investment trust, you do not choose which holdings to invest in, but instead you are choosing to invest in a trust whose objective, approach and risk profile fits your needs.

Exchange-Traded Funds (ETFs)

ETFs are investment funds that hold a basket of assets, such as equities, bonds or commodities, and trade on a stock exchange, similar to shares. They are bought and sold as ETF shares on a stock exchange and their market price usually tracks close to the NAV. ETFs are commonly used by both professional fund managers and individual investors as a flexible, often cost-efficient way to build a diversified portfolio. Unlike traditional funds that are priced once a day, ETFs can be bought and sold at their market price throughout the day. Unlike investment trusts, shares in ETFs can be created or redeemed.

A note on Net Asset Value (NAV)

The net asset value (NAV) is the value of the assets held by the investment trust minus any money it has to pay out, per share. The NAV is calculated by taking the total value of all the assets held by the investment trust, minus any money it has to pay out (called liabilities), then dividing by the number of shares. For UK OEICs and unit trusts, the NAV is usually worked out each dealing day by the fund administrator, with the depositary/trustee overseeing the process.

For investment trusts, the process is similar, but because they’re listed companies, NAV is overseen by the board and service providers. While this process isn’t checked by an independent auditor every day, the numbers are audited externally in the annual accounts as part of their normal financial reporting. Unlike open-ended funds, an investment trust’s share price is set by the market and can be above or below NAV. For ETFs, the NAV reflects the value of the fund’s underlying holdings per share and is published once per day.

Collectives (investment funds) comparison table

	Open-ended funds (OEICs & Unit trusts)	Closed-ended funds (Investment trusts)	Exchange-traded funds (ETFs)
How you buy and sell	You deal directly with the fund (you’re creating/cancelling units or shares).	You buy or sell shares on a stock exchange, like a listed company.	You buy or sell ETF shares on a stock exchange.
When the price is set	Typically once per day at a set valuation point (not throughout the day).	Throughout the day (intraday) during market hours.	Throughout the day (intraday) during market hours.
What drives the price	Usually based on the fund’s NAV at the valuation point (often single pricing).	Predominantly, the price should be driven by NAV. However, the share price is sensitive to demand, so can trade at a discount or premium to NAV.	Market price on exchange; the ETF structure is designed to track close to NAV, but it can diverge at times.
Typical management style	Can be active or passive (varies by fund).	Usually active, overseen by a board; some use specialist strategies.	Often passive (index-tracking), but active ETFs exist too.
Costs involved	You’ll usually see an ongoing charge; there may be dealing-related adjustments in certain conditions (varies by fund).	Your platform may charge a dealing fee. Discounts/premiums can affect outcomes.	Bid-offer spread and liquidity – how easy it is to enter and exit the fund – matter. Platform dealing fees may apply. FX costs can apply depending on listing/currency.
Liquidity and trading frictions	You can usually deal on dealing days, but the fund may face constraints if underlying assets are hard to trade.	Bid-offer spread and liquidity – how easy it is to enter and exit the fund – depend on market trading activity. Some trusts invest in less liquid assets, which can affect the share’s liquidity or the bid-offer spread.	Often very liquid in major markets, but liquidity varies by ETF size and what it invests in.
What investors often like about them	Straightforward, widely available, and commonly used for long-term investing across many strategies.	Can access specialist or less liquid areas with the ease of trading on an exchange. Some investors track the discount/premium, considering it a source of opportunity. Gearing, if used, can be considered an opportunity (but is also a risk).	Convenient to trade on an exchange; commonly used for broad market exposure and ‘building blocks’ allocations.
Key considerations (what to watch for)	You don’t know the exact final price when you place the order (it’s set at the next valuation point).	Discounts/premiums can widen or narrow; gearing can increase volatility; spreads and liquidity matter.	How closely it tracks its exposure can matter; spreads and liquidity matter; price can deviate from NAV in certain conditions.

How to choose a collective investment

To help you choose the collective investment that is right for you, it can be helpful to ask yourself a few questions split into two main categories.

1. What do you want to invest in?

Before you make an investment, it is helpful to determine what you are trying to achieve:

What’s your goal? Growth, income, or a balance of both. This can help you decide the type of investment you need (such as equities for growth, bonds for income, multi‑asset for balance).
How long will you stay invested? Your time horizon can shape how much risk you can reasonably take. For instance, if you may need access to your money in the medium-term (within five years or so), higher risk equity funds may be unsuitable.
How many ups and downs can you tolerate? Aim for a level of volatility you can comfortably stick with through market moves. Some collectives provide exposure to more illiquid areas or might hold more volatile assets; investing in these depends on your tolerance for risk.

You can learn more about this in our beginner’s guide to investing.

2. How do you want to invest in it?

OEICs and unit trusts are often used where intraday trading isn’t a priority. This makes them less suitable for tactical trading where you want to buy or sell at a specific moment, or have high certainty over the exact execution price. However, they offer a wide range of strategies and cost levels for longer‑term investing.
Many investment trusts invest in traditional assets classes, but this type of collective can be useful for accessing less-liquid asset classes/areas of the market while retaining the flexibility of an exchange-traded vehicle.
Exchange-Traded Funds (ETFs) are commonly used for index exposure, but they can be actively managed too. Passive ETFs in particular are commonly used as building blocks in portfolios (for example, broad US market exposure).

Note: We do offer investment advice. You should do your own research.

Here’s what you can review before you actually invest in the collective:

Once you’ve decided on which structure to invest in, you can check against some of these factors to see if the collective is the right fit for you:

Objective and strategy: what it’s trying to achieve and how.
Holdings and exposures: major positions (what constitutes most of the holding e.g. shares or bonds), sectors or countries it is invested in, currency (and any foreign exchange risk), and how concentrated (holds a limited number of selected securities) it is.
Costs: ongoing charges, any trading-related costs (for example spreads and dealing/platform charges where relevant).
Benchmark or peer group: what a fair performance comparison looks like (if applicable).
Liquidity and dealing: how and when you can trade, and how spreads or dealing points (valuation points) may affect the price.
Key documents: KIID for key information, factsheets, and any reporting that explains risks and performance.

Placing the order (open-ended vs exchange-traded)

Open-ended funds (OEICs/unit trusts) are commonly traded using the forward pricing mechanism, that is, executed at the next valuation point. With these collectives, you place an order and the final price is confirmed after that point.
ETFs and investment trusts trade on an exchange during market hours, where your provider or platform may offer order types such as market orders (filled at the best available price) and limit orders (filled only at your chosen price or better) to execute your trade.

Monitoring: What should you do after you’ve invested?

It is usually recommended to review all your investments on a planned periodic schedule rather than reacting on a day-to-day basis. A simple review involves checking whether the investments still fit your goal, risk tolerance, and role in your portfolio. Also check whether costs and exposures still look appropriate.

What is an OEIC or unit trust? >>

Risk warning

The longer you stay invested, the more time your money has to grow. Investments go up and down, so at times you could get back less than you invest. With self-managed investing, you make your own investment decisions and are responsible for choosing and monitoring your investments.

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