The Financial Times Guide to Investing, 4th Edition

Chapter 5

Pooled investments

Instead of buying shares individually, investors can pool their money and buy shares (and other assets) collectively. There are some significant advantages of pooled (collective) investment.

First, a more diversified portfolio can be created. Investors with a relatively small sum to invest, say £3,000, would find it difficult to obtain a broad spread of investments without incurring high transaction costs. If, however, 10,000 people each put £3,000 into a fund there would be £30 million available to invest in a wide range of securities. A large fund like this can buy in large quantities, say £100,000 at a time, reducing dealing and administrative costs per pound invested. Thus risk is reduced by diversification ...