In this article, we'll take a look at Investment basics.
Please note: Chip can't provide financial advice so you may want to seek guidance from a qualified professional if you are unsure or have detailed questions around investing. Your capital is at risk
What is an investment platform?
An investment platform is a website, or app-based service, that enables people (sometimes known as ‘retail investors’ in the industry) to access investment funds.
They typically charge a small fee for their service known as a platform fee (we explain more in our eligibility and costs guide).
Chip is providing an investment platform, which means we don’t manage the funds ourselves, we have created a user-friendly interface where you can easily move money in and out of the investment funds, monitor your funds’ performance, and keep track of statements.
What is an investment account? What's a GIA/ISA?
Within our platform you have an ‘investment account’, either a tax-efficient ISA or a General Investment Account (GIA), read more about this in our ISAs explained guide.
We work with a company called Seccl which acts as the ‘custodian’ and provides the behind the scenes technology for your investment account (read more about them here).
However, you won’t need to liaise with them or pay any fees, and Chip’s support team can handle all your queries.
What is an investment fund?
An investment fund is a quick and low-cost way for investors to diversify their portfolio.
A fund is an investment that pools together money from lots of individuals, it is run by a fund manager (in our case BlackRock, L&G and Vanguard) who invests the money in a wide range of assets (see ‘What are assets’ below for more on this).
When you put your money in a fund you buy ‘units’, which represent a portion of the holdings of a fund (see ‘what’s a unit’ below), and when you want to take your money out you need to sell units.
How are investment funds different from directly investing in stocks, shares and other assets?
Investing in funds means your money is spread across multiple assets. As some investments will perform better and some worse over time, diversifying will, in theory, help spread the risk and aims to smooth returns over time.
Investing in a fund is also preferred by investors who want to save time (not reviewing and pricing individual stocks) and money (not paying lots of commissions and fees to invest globally).
What are investments/assets?
An investment is any asset purchased with the expectation that it will increase in value, and be sold at a later date for a profit.
Assets most commonly used for investments are:
Stocks and shares (known as equities)
Corporate Bonds
Government Bonds (also known as Gilts)
Property
Commodities (e.g. gold, oil, steel, lumber etc… )
The BlackRock Consensus fund range contains a range of assets from across the globe. Specialist funds do exist that invest in all kinds of assets, we may add some of these at a later date, but we will explain them in more detail then.
What are bonds and equities?
Stocks and shares are commonly called equities, these give you partial ownership in a publicly traded company.
Generally, you may get a return from investing in equities by seeing them increase in value on the stock market. You can also earn ‘dividends’ through equities, this is where companies either issue cash or additional stocks to their shareholders if the company has performed well.
Equities are generally historically more volatile in price than most bonds, meaning they can increase in value faster but can also quickly lose value. Returns from equities are not guaranteed in any way. The share price fluctuates continuously, while the stock market in which they operate is open. Therefore the money you invest will fall as well as rise over any given period of time.
Bonds are a loan from you to a company or government. Government bonds are often also referred to as gilts. Bondholders may receive returns in the form of interest (called a ‘coupon’) and will get all the capital invested back when the bond ‘matures’. Bonds can also generate a profit if they can be resold on the bond market at a higher price.
Bonds are generally considered to be more stable and lower-risk assets to invest in. Though, there are many types of bonds, and there’s a big difference between a UK government bond and a Netflix bond. Also, companies and governments can (and do) default on bonds.
What is a ‘unit’?
An investment fund is made up of 'units', so if you want to invest, you'll need to buy units – and these come at a cost which varies from day to day.
For example, if you want to invest £1,000 in a fund; if each fund unit costs £2, you can buy 500 units. Six months later, if the fund price increases to £2.50, your investment is now worth £1,250.
How are units priced?
The unit price is worked out by dividing the total value of investments in the fund by the number of units in the fund. For example, if there were 10,000 units held in a fund worth £20,000, then the price of each unit would be (£20,000 divided by 10,000) = £2 (or 200 pence) a unit.
What is a Key Investor Information Document (KIID)?
Fund managers provide an information sheet called a KIID (Key Investor Information Document) which includes all the important information about a fund.
It describes what the fund does, the investment risk, associated charges and performance to help you compare different funds and assess whether that particular investment is right for you. It comes in a standardised format, set out by European regulations.
Here is an example of the “BlackRock Adventurous” KIID that will be available in the Chip app. Please check our important documents page for more.
What is a Key Features Document?
A Key Features Document outlines the features of each product type, ISA and GIA. These are presented to you when you create your investment account with Chip and can also be found on our website.
