Learn more about Mutual Funds

Capital at risk.
What are mutual funds?
How do mutual funds differ from exchange-traded funds (ETFs)?
What types of mutual funds are there?
What is the difference between accumulation and income units?
How do I buy and sell mutual funds?
How are mutual funds priced?
What are the fees?
Can I hold mutual funds in my ISA and SIPP?
Which mutual funds are available on Freetrade?
Important Information

What are mutual funds?

A mutual fund is a type of investment which pools money from investors to buy a portfolio of stocks, bonds, or other assets. It is managed by one or more professional fund managers who make investment decisions based on the fund’s objectives.

When you buy into a mutual fund you own “units” which represent a proportional stake in its holdings.

There are various types of mutual funds, including index, equity,  bond, money market, and multi-asset funds. Each fund caters to different risk appetites, preferences,  and investment goals.

Mutual funds offer benefits like diversification, professional management, and convenience, making them popular with both new and experienced investors. They are a simple way to invest and diversify without picking individual stocks.

However, they also carry risks such as market volatility and reliance on fund manager performance. As mutual funds are actively managed by professional fund managers, they also incur management fees that can reduce returns over time.

Many brokerage platforms also charge a fund fee to hold mutual funds in your portfolio. Typically this ranges from 0.25% to 0.45% on your holdings, uncapped. There is no fund fee to hold mutual funds on Freetrade, meaning more of your money stays invested and working for you. Learn more about fees.

How do mutual funds differ from exchange-traded funds (ETFs)?

Mutual funds and ETFs are similar in that they are effectively a “basket” of investments wrapped up in a single share. They offer investors a simple way to diversify their portfolios.

However, they also differ in a few ways.
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  1. Mutual funds are priced once per day, whereas ETFs pricing constantly fluctuates with intraday trading on the stock market.
  2. Mutual fund pricing is based on net asset value (NAV), whereas ETF prices are driven by supply and demand throughout the day as they are traded on the stock market, just like stocks.
  3. Mutual funds are more likely to be actively managed. This means there is a professional fund manager picking and choosing what the fund is invested in. ETFs on the other hand, are more likely to be passively managed, and aim to replicate specific market indices.

Below is a comparison of mutual funds and ETFs.
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 Mutual FundsETFs
PricingEnd of day net asset value (NAV)Pricing fluctuates constantly, driven by market supply and demand
ManagementMore likely to be actively managed by a professional fund manager, however passive mutual funds are also commonTypically passively managed, however actively managed ETFs also exist (and have higher fees)
Management feesIt varies, but can be between 0.5% and 1.5%. Mutual fund management fees are higher as they benefit from a professional fund manager and require more administration.Fees are deducted from your returns.It varies, but can be between 0.03% and 0.15% for a passive ETF, and between 0.63% to 0.75% for an actively managed ETF.Fees are deducted from your returns.
Platform fund feeTypically between 0.25% and 0.45% of holdings, uncapped. No charge on Freetrade.Ranging from 0% to 0.45% of holdings, cappedNo charge on Freetrade
Minimum investment amountOften require a minimum investment; on Freetrade this is £50Buy as little as one share

What types of mutual funds are there?

Broadly speaking, mutual funds fall into the below categories.

Index funds
‍Also called a tracker fund, this type of mutual fund aims to track the performance of a given index, such as the FTSE 100 or S&P 500. Like their ETF counterparts, this type of fund is usually passively managed. Index funds give investors exposure to a wide range of assets in the chosen index, and in return can reduce risk through diversification.

‍Equity funds
‍Equity funds primarily invest in stocks that are traded on major exchanges. There are a number of sub-categories for equity funds, depending on the fund’s goal. The fund may target equities of a certain market capitalisation, geography, sector, or specialty, such as ESG companies. The fund manager may also invest in what they determine to be growth stocks or value stocks.

‍Bond funds
‍Bond funds invest in debt assets, such as bonds issued by companies or governments. They aim to generate regular income for investors, and are sometimes referred to as fixed income mutual funds. Risk and reward for bond funds depends on the quality, or grade, of the bonds in the mutual fund. High-quality bonds pay lower interest than riskier bonds, but are less likely to result in a default by the bond issuer.

‍Money market funds
‍Money market funds invest in low-risk and short-term assets such as cash, government bonds, Treasury bills, bank certificates of deposit, and other cash-equivalent securities. Typically they are actively managed, and offer investors a relatively low-risk investment option for money you may need to access in the short term. For this reason, they tend to have lower returns.

‍Multi-asset funds
‍Multi-asset funds invest across a mix of assets: cash, equities, bonds, and property. This type of fund tends to be actively managed, and the fund manager will rebalance the fund’s investments across asset classes as they rise and fall in value. Investors can choose multi-asset funds to suit their personal goals, such as saving for retirement, generating income, or growing your portfolio via ESG assets.

What is the difference between accumulation and income units?

Most funds offer either income or accumulation units. The key difference is how they handle income (such as dividends and interest). It’s similar to ETFs, which can be distributing or accumulating.

Income units pay income out to unit holders as cash.

Accumulation units “roll up” the income, and reinvest it back into the fund. This can result in the price of each unit increasing, generating growth on your investment.

How do I buy and sell mutual funds?

Mutual funds trade differently to exchange-traded instruments, such as stocks, ETFs, and investment trusts, because they aren’t traded throughout the day. Instead, mutual funds are traded once per day after markets have closed.

Mutual funds are traded on a forward pricing basis, meaning the price you see will be different to the price you may trade at. This is because mutual funds are priced once daily by the fund managers, using a net asset value (NAV) calculation.

‍Buying and selling mutual funds on Freetrade
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‍We recently launched the beta version of mutual funds. You can now buy and sell funds on Freetrade using the web platform. Stay tuned as we add more funds, build in more data, add funds to the mobile app, and open up transfers.
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  1. Go to the Discover screen on Freetrade’s web platform and choose the fund you want to buy or sell. The “current price” you are shown is the price the units were last traded at (remember, this happens once per day). Choose to buy a specific number of units, or invest a specified amount.
  2. Once you place your order, it will be queued until the designated “trade cut-off” time. During the mutual funds beta, this cut-off time is set as 9 AM for each fund we’re offering. You can cancel or amend your order up to this time.
  3. After the cut-off time, your order will be sent to the fund manager who will calculate the fund’s price.
  4. Once the trade is complete, you will receive confirmation of the price and number of units purchased, and your portfolio will update accordingly. This may not happen immediately after the cut-off time, and in some cases may take several days for the fund manager to confirm your transaction.

How are mutual funds priced?

Unlike exchange-traded instruments, such as stocks, ETFs, and investment trusts, mutual funds prices are not dictated by market supply and demand.

Instead, mutual funds pricing is based on the fund’s net asset value (NAV).
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Diagram showing a NAV per share calculation.

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  • Total assets include the market value of all the securities in the portfolio, cash, and accrued income
  • Total liabilities include expenses, management fees, and other obligations
  • Outstanding shares is the number of units investors currently hold

NAV looks at the closing prices of the underlying securities each day.

NAV is not the same thing as price, though. It is used to determine the value of the mutual fund, but the trade price could be different because the units may trade at a premium (higher than the NAV) or a discount (lower than the NAV). Currently, for our beta experience, only open-ended funds are available which don’t trade at a premium or discount.

It’s important to remember that while NAV reflects the fund’s price, it doesn't directly indicate the fund’s performance. Total return, which includes capital gains, dividends, interest, and realised distributions is a better performance metric.

What are the fees?

Ongoing charges figure

‍Fund managers charge a fee to manage the fund. This is known as an ongoing charges figure (OCF) and covers the management and administration costs of running the fund. The OCF varies from fund to fund.

For example, if a fund’s OCF is 0.85% and you have £1,000 worth of units in the fund, your charges will cost £8.50 per year. This fee is deducted directly from your returns.

The OCF is listed under “fund fee” on the instrument details screen in your app or web platform. It is also found in each fund’s Key Investor Information Document (KIID).Passive funds will have a lower OCF than an actively managed fund, because their management costs are higher.

‍Account charge

‍Most brokers will charge a percentage-based account fee to hold funds in your account. This can add up, especially when the fees are uncapped.

Funds are available with Freetrade’s Plus plan, for a flat monthly fee of £9.99 (when paid annually). This gives you access to all account types (GIA, ISA, SIPP), lower FX fees, priority customer service, and much more.

Our flat fee means your fees don’t grow with your portfolio.

‍Transaction fees

‍It’s free to buy and sell funds on Freetrade. You won’t be charged a dealing commission, unlike other platforms.
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Can I hold mutual funds in my ISA and SIPP?

Mutual funds are most tax-efficient if they are held in an ISA or self-invested personal pension (SIPP).

Investments inside an ISA or SIPP incur:
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  • No capital gains tax (usually payable on gains over £3,000)
  • No UK dividend tax (usually payable on dividends over £500)

If you were to invest using a General Investment Account (GIA), then you would be liable to pay these taxes.

ISA and SIPP eligibility rules apply. Tax treatment depends on personal circumstances and current rules may change.Mutual funds are most tax-efficient if they are held in an ISA or self-invested personal pension (SIPP).
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Open An ISA
Open a Sipp

Which mutual funds are available on Freetrade?

Mutual funds are in beta  on Freetrade. This means you can buy and sell funds, and build your portfolio. Stay tuned as we build in more fund data, add it to the mobile app, and open up transfers.

‍There are currently 22 Vanguard mutual funds available on Freetrade.
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LifeStrategy Funds
GB00B4NXY349Vanguard LifeStrategy 20% Equity Fund A Gross (Accumulating)
GB00B3ZHN960Vanguard LifeStrategy 40% Equity Fund A (Accumulating)
GB00B3TYHH97Vanguard LifeStrategy 60% Equity Fund (Accumulating)
GB00B4PQW151Vanguard LifeStrategy 80% Equity Fund (Accumulating)
GB00B41XG308Vanguard LifeStrategy 100% Equity Fund (Accumulating)
Target Retirement Funds
GB00BZ6VHV15Vanguard Target Retirement 2015 Fund (Accumulating)
GB00BZ6VJB58Vanguard Target Retirement 2025 Fund (Accumulating)
GB00BZ6VJD72Vanguard Target Retirement 2030 Fund (Accumulating)
GB00BZ6VK781Vanguard Target Retirement 2040 Fund (Accumulating)
GB00BF38WW17Vanguard Target Retirement 2060 Fund (Accumulating)
GB00BF38WX24Vanguard Target Retirement 2065 Fund (Accumulating)
Equity index funds
GB00B5B71Q71Vanguard U.S. Equity Index Fund (Accumulating)
GB00BD3RZ582Vanguard FTSE Global All Cap Index Fund (Accumulating)
GB00B59G4H82Vanguard FTSE U.K. Equity Income Index Fund GBP (Accumulating)
GB00B59G4Q73Vanguard FTSE Developed World ex-U.K. Equity Index Fund GBP (Accumulating)
GB00B5B71H80Vanguard FTSE Developed Europe ex-U.K. Equity Index Fund GBP (Accumulating)
Actively managed equity funds
GB00BMV9B621Vanguard Global Capital Stewards Equity Fund (Accumulating)
GB00BZ82ZT69Vanguard Global Equity Fund (Accumulating)
GB00BZ82ZY13Vanguard Global Emerging Markets Fund (Accumulating)
ActiveLife Climate Aware funds
GB00BMCQRZ38Vanguard ActiveLife Climate Aware 40-50% Equity Fund (Accumulating)
GB00BZ830054Vanguard ActiveLife Climate Aware 60-70% Equity Fund (Accumulating)
GB00BMCQS161Vanguard ActiveLife Climate Aware 80-90% Equity Fund (Accumulating)

Important Information

When you invest, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you invest. Other risks include those associated with specific sectors or geographic regions. There is no guarantee that the fund’s objective will be achieved.

Freetrade does not give investment advice and you are responsible for making your own investment decisions. If you are unsure about what is right for you, you should seek independent advice.

ISA and SIPP eligibility rules apply. Tax treatment depends on personal circumstances and current rules may change. A SIPP is a pension designed for you to save until your retirement and is for people who want to make their own investment decisions. You can normally only draw your pension from age 55 (57 from 2028), except in special circumstances.

At present, Freetrade only supports Uncrystallised Fund Pension Lump Sums (UFPLS) for customers who wish to withdraw funds from their SIPP after their 55th birthday. We strongly encourage you to seek financial advice before making any withdrawals from your SIPP.

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