What is a stock fund?

It’s a type of investment fund that invests chiefly in stocks. Some stock funds also hold bonds and cash but most allot at least 80% of the portfolio's assets to stocks. They’re run by professional money managers, who invest the fund’s capital with the hope of making gains for their investors.

Where have you heard about stock funds?

Stock funds are a basic element of investing. They're popular because they spread the risk and you can invest with as little as £25 a month. There are hundreds to choose from though, so the hardest part is often knowing which one to pick.

What you need to know about stock funds.

A stock fund will be focused on a particular area. For example, it might invest only in FTSE 100 companies or concentrate on small-cap firms.

The funds vary in risk depending on the types of stock they invest in. A fund might be high risk if it focuses mainly on start-ups, or it may be low risk if it invests in blue-chip companies with stable returns.

The main advantage of a stock fund is that you can invest in several stocks under a single wrapper, thereby diversifying your portfolio, although you will have to pay fees for the ongoing management of the fund.