What are mutual funds?
A mutual fund (sometimes called a “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. Freetrade will not charge you to hold mutual funds with us, meaning more of your money stays invested and working for you. Please note that each of the funds which are offered on the platform will incur its own management, transaction, and administrative costs which are taken from the fund. Learn more about fees.
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. Freetrade will not charge you to hold mutual funds with us, meaning more of your money stays invested and working for you. Please note that each of the funds which are offered on the platform will incur its own management, transaction, and administrative costs which are taken from the fund. 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 or unit. They offer investors a simple way to diversify their portfolios.
However, they also differ in a few ways:
However, they also differ in a few ways:
- Mutual funds are priced once per day, whereas ETFs’ prices constantly fluctuate with intraday trading on the stock market.
- 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.
- 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.
| Mutual funds | ETFs | |
|---|---|---|
| Pricing | End of day net asset value (NAV) | Pricing fluctuates constantly, driven by market supply and demand |
| Management | More likely to be actively managed by a professional fund manager, however passive mutual funds are also common | Typically passively managed, however actively managed ETFs also exist (and have higher fees) |
| Management fees | It varies, but would normally be between 0.5% and 1.5%. Actively managed mutual fund management fees are often higher as they benefit from a professional fund manager and require more administration. Fees are deducted from the funds. | It varies, but can be as low as 0.03% for a passive ETF, or 0.63% an actively managed ETF. Fees are deducted from the funds. |
| Platform fund fee | Typically between 0.25% and 0.45% of holdings, uncapped. No charge on Freetrade. | Ranging from 0% to 0.45% of holdings, capped. No charge on Freetrade |
| Minimum investment amount | Often require a minimum investment. | Buy 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 passively managed and normally has lower management fees. Index funds give investors exposure to a wide range of assets in the chosen index, which could be equities or bonds, and in return can reduce risk through diversification.
Equity funds
Equity funds primarily invest in stocks that are traded on 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.
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 passively managed and normally has lower management fees. Index funds give investors exposure to a wide range of assets in the chosen index, which could be equities or bonds, and in return can reduce risk through diversification.
Equity funds
Equity funds primarily invest in stocks that are traded on 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, also known as distributing, 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, or distributing, 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.
Income, or distributing, 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.
What is the difference between active and passive funds?
An active fund is run by a fund manager who tries to beat the market by picking investments they believe will perform best. They research companies, adjust holdings, and aim to outperform a benchmark like the FTSE 100. Because of this hands-on approach, fees tend to be higher, and performance depends on the manager’s skill.
A passive fund (or index tracker) aims to match the market, not beat it. It simply follows an index, investing in all or most of its companies. This approach is lower cost and aims to deliver returns aligned to the market average.
Both carry risk, active funds can underperform, and passive funds will fall if the market does.
A passive fund (or index tracker) aims to match the market, not beat it. It simply follows an index, investing in all or most of its companies. This approach is lower cost and aims to deliver returns aligned to the market average.
Both carry risk, active funds can underperform, and passive funds will fall if the market does.
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.
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.
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
You can now buy and sell funds on Freetrade.
- Go to the Discover screen in Freetrade 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.
- Once you place your order, it will be queued until the designated “trade cut-off” time. The cut-off time will vary depending on the fund and you will be able to see the cut-off time displayed on the fund’s instrument screen both on web and in the app. After the cut-off time, your order will be sent to our execution partner. They will execute your order based on the NAV of the fund that is calculated after the order was submitted.
- 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.
Please ensure that when purchasing a fund you review the Key Information Document, which can be found under the “Documents” tab.
Which mutual funds are available on Freetrade?
Choose from a wide range of mutual funds from providers like Royal London, Vanguard, Aegon, and Schroders.
If you’re a Freetrade customer, log in to view the full mutual fund collection.
Here’s the full list of mutual funds offered on Freetrade.
If you’re a Freetrade customer, log in to view the full mutual fund collection.
Here’s the full list of mutual funds offered on Freetrade.
How are mutual funds priced?
Unlike exchange-traded instruments, such as stocks, ETFs, and investment trusts, mutual funds prices do not fluctuate throughout the day based on market supply and demand.
Instead, mutual funds pricing is based on the fund’s net asset value (NAV).
Instead, mutual funds pricing is based on the fund’s net asset value (NAV).
- 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.
It’s important to remember that while NAV reflects the fund’s price, it doesn't indicate the fund’s performance. Total return, which includes capital gains, dividends, interest, and realised distributions is a better performance metric.
It’s important to remember that while NAV reflects the fund’s price, it doesn't indicate the fund’s performance. Total return, which includes capital gains, dividends, interest, and realised distributions is a better performance metric.
Why do different fund classes have different prices?
Some funds offer different classes (or types) of units to suit different kinds of investors. For example, there might be separate classes for individual investors (like those using Freetrade) and for large institutions such as pension funds.
Each class can have its own costs, minimum investment levels, or income options, which can lead to small differences in price and performance.
You might also see different classes based on how they handle income:
Each class can have its own costs, minimum investment levels, or income options, which can lead to small differences in price and performance.
You might also see different classes based on how they handle income:
- Accumulation units reinvest any income (like dividends) back into the fund.
- Income units pay that income out to investors.
There’s no universal rule for fund class names, for example, “Class A” in one fund won’t be the same as “Class A” in another. These labels simply help distinguish one version of a fund from another.
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 the fund’s assets.
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 often 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 a Plus plan (from £9.99/mo) or Standard plan (from £4.99/mo). Compare plans here.
Our flat fee means your account 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.
Dilution levy
Sometimes, when there’s a lot of buying or selling in a fund, it can push up the fund’s dealing costs. This might affect the value of the fund’s assets and ultimately, all investors.
To help protect existing investors, the fund manager might add something called a dilution levy. This is a small extra charge (usually between 0.5% and 2% of your trade) that helps cover those costs. The money goes back into the fund, not to the manager.
Only a small number of funds use a dilution levy. Some funds only apply it when there’s been a particularly large inflow or outflow. Most funds instead cover these costs through their regular ongoing charges or apply what is known as swing pricing in the fund.
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 the fund’s assets.
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 often 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 a Plus plan (from £9.99/mo) or Standard plan (from £4.99/mo). Compare plans here.
Our flat fee means your account 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.
Dilution levy
Sometimes, when there’s a lot of buying or selling in a fund, it can push up the fund’s dealing costs. This might affect the value of the fund’s assets and ultimately, all investors.
To help protect existing investors, the fund manager might add something called a dilution levy. This is a small extra charge (usually between 0.5% and 2% of your trade) that helps cover those costs. The money goes back into the fund, not to the manager.
Only a small number of funds use a dilution levy. Some funds only apply it when there’s been a particularly large inflow or outflow. Most funds instead cover these costs through their regular ongoing charges or apply what is known as swing pricing in the fund.
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:
Investments inside an ISA or SIPP incur:
- 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.
ISA and SIPP eligibility rules apply. Tax treatment depends on personal circumstances and current rules may change.
How can I transfer my mutual funds to Freetrade?
You can transfer your mutual funds to Freetrade by raising a transfer request on either our app or website.
Please ensure that you check our funds universe to make sure we offer the fund you are looking to transfer into Freetrade. We are continuing to add more funds to our universe, so please keep an eye out for when a fund you want to transfer in has been added.
There may be some mutual funds which we do not currently offer. When opting for a full transfer, you can choose to either leave the funds we can’t accept at your current provider, or have them sold and the proceeds transferred as cash.
If you choose to do a partial transfer, we will ask you to provide details on each of the funds you are looking to transfer.
Please ensure that you check our funds universe to make sure we offer the fund you are looking to transfer into Freetrade. We are continuing to add more funds to our universe, so please keep an eye out for when a fund you want to transfer in has been added.
There may be some mutual funds which we do not currently offer. When opting for a full transfer, you can choose to either leave the funds we can’t accept at your current provider, or have them sold and the proceeds transferred as cash.
If you choose to do a partial transfer, we will ask you to provide details on each of the funds you are looking to transfer.
How long will the transfer of my mutual funds take?
Transfers of mutual funds can take up to eight weeks to complete, depending on the other provider, type of account, and the number of funds you are transferring.
What are the costs associated with transferring my mutual funds?
Freetrade will not charge you for transferring your holdings into or away from our platform. However, your other provider may charge exit fees when you transfer to us, so it’s best to check first.
If you’re transferring mutual funds, your provider may convert your shares to a different share class before sending them to us.
This may mean the ongoing charges differ to what you’ve previously been charged, and in some cases could be higher.
If you’re transferring mutual funds, your provider may convert your shares to a different share class before sending them to us.
This may mean the ongoing charges differ to what you’ve previously been charged, and in some cases could be higher.
You don’t appear to have all the funds I hold at my current provider, can I still transfer into Freetrade?
If you can’t see the current fund you hold in our funds universe you will be unable to transfer it into us at this stage.
We’re currently expanding the range of funds available at Freetrade, and your fund may become available in the future.
We can only accept transfers of mutual funds listed in our current universe. If your fund and the exact share class held with your current provider isn’t listed, we may still be able to accept it if the provider offers a conversion into one we support.
If no conversion is available we will follow the instructions you would provide as part of the transfer flow.
We’re currently expanding the range of funds available at Freetrade, and your fund may become available in the future.
We can only accept transfers of mutual funds listed in our current universe. If your fund and the exact share class held with your current provider isn’t listed, we may still be able to accept it if the provider offers a conversion into one we support.
If no conversion is available we will follow the instructions you would provide as part of the transfer flow.
What is a fund conversion?
A fund conversion occurs when an existing holding in a fund share class is transferred to another share class offered by the same fund. The activity is not treated as a sale or a purchase, the underlying investments and strategy remain the same, but the share class changes (for example, from a “Distributing” to an “Accumulation” version).
Why might a fund conversion take place?
Conversions may be initiated for several reasons, for example:
- An alternative share class becomes available that is cheaper for retail investors.
- A fund manager changes the share classes that they permit a distributor, like Freetrade, to use.
In each case, the aim is to retain the same investment exposure while aligning with new pricing, distribution, or currency arrangements.
Is a conversion the same as switching funds?
No. A conversion remains within the same fund and no disposal takes place.
By contrast, a switch (or “sell and buy”) involves selling one fund and purchasing another, which may have tax implications if held outside an ISA or SIPP.
By contrast, a switch (or “sell and buy”) involves selling one fund and purchasing another, which may have tax implications if held outside an ISA or SIPP.
What is a mutual fund holiday?
A fund holiday is a day when a mutual fund does not process transactions such as purchases, redemptions (sales), or switches. Funds price and trade based on the value of their underlying assets. If the underlying markets are closed, the fund can’t calculate an accurate net asset value (NAV). For this reason, mutual funds declare “holidays” in line with local market holidays, fund domicile rules, and underlying asset markets.
Orders can still be placed, however they will be queued for the next dealing day.
Please also be aware that fund holidays will be treated as a non-working day for settlements.
Orders can still be placed, however they will be queued for the next dealing day.
Please also be aware that fund holidays will be treated as a non-working day for settlements.
How will a mutual fund holiday affect me?
Orders and redemptions can still be placed, but will not be executed until the next dealing day.
Your fund cannot be transferred between brokers on a holiday.
Your fund cannot be transferred between brokers on a holiday.
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 people who want to make their own investment decisions. You can normally only access your money from age 55 (57 from 2028).
Freetrade currently only supports Uncrystallised Fund Pension Lump Sums (UFPLS) for SIPP withdrawals.
Before transferring, check for any exit fees or loss of benefits from your current provider.
Pensions transferred to Freetrade may lose any protected pension age benefit, meaning you may not be able to draw the money until age 57.
Seek professional advice if you need help with your pension.
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 people who want to make their own investment decisions. You can normally only access your money from age 55 (57 from 2028).
Freetrade currently only supports Uncrystallised Fund Pension Lump Sums (UFPLS) for SIPP withdrawals.
Before transferring, check for any exit fees or loss of benefits from your current provider.
Pensions transferred to Freetrade may lose any protected pension age benefit, meaning you may not be able to draw the money until age 57.
Seek professional advice if you need help with your pension.
