MoneyMagpie

Jun 02

Save money by investing through a fund supermarket

If you’re thinking you really want to invest in some stocks and shares-based products – maybe an index tracking fund, a managed fund or directly into a company’s shares – you’re probably wondering how do you do it?

Well you can often invest direct, if you’re buying into a fund. Index trackers, for example, are nice and easy to invest in…you can even ring up the company and do it over the phone.

With individual shares you will need to go through an online broker which is a bit more of a hassle but nothing serious. You set up an account and then every time you trade (buy or sell) your shares you pay a fee (usually around £10 or so).

Or….you could do it all through what is called a Fund Supermarket. These are online ‘platforms’ that enable you to invest in, and sell, all sorts of stock market investments, usually at a cheaper rate than you could get by going direct.

Sounds good?

Here’s how you do it.

 

What is a fund supermarket


moneymagpie_shopping-trolley-graphic
A fund supermarket is a platform (a website that you can use for your own stuff) through which you can invest in stock market funds, and other types of funds such as bond and gilt funds, cheaper than you would if you were investing direct.

That’s the ‘supermarket’ element. The idea is that like with Tesco, Aldi and Asda, these fund supermarkets buy and sell in bulk so they can sell them to you cheaper than small outfits would be able to do.

Because, as you know, when you invest in a fund, there is an initial charge to set it up for you as well as an ongoing, annual fee to manage it for you.

With fund supermarkets you can often get the initial charge halved or even wiped out totally. They can also get the annual charges reduced.

So it can really make sense to buy and sell through these ‘supermarkets’!

 

 

How do they work?

For a start, fund supermarkets are only useful to people (like me) who do their own investing and make their own decisions about their investments.fund supermarket

If you’re the sort of person who likes someone else to manage your money – say an IFA or a stock broker – then these are not really of much use to you.

However, for personal investors like me, the ‘platform’ can be a real help. Not only is it often cheaper to use than going direct, it also helps you manage your ‘portfolio’ (your mix of investments) in one place.

 

Fund supermarkets can also offer information on the funds, including which companies they’re invested in, historical and recent performance figures and an analysis of their investment styles. Most of them will also let you to invest over the phone if you’re not keen on doing it all online.

Some fund supermarkets will only offer access to Unit Trusts and Open-Ended Investment Companies (OEICs) but others also offer access to stock-exchange listed investments like shares, Investment Trusts and Exchange-Traded Funds (ETFs).

With a fund supermarket you can also put your investments into an ISA or a Self-Invested Personal Pension (SiPP) to save on tax. Remember that dividends are still taxed 10% in both ISAs and SiPPs, but you don’t pay any other tax (particularly income tax) if you’re a higher rate taxpayer.

 

How do I save money through a fund supermarket?

fund supermarketRichard Webb from Salty Dog (see his blog with loads of investing tips here) says:

“If you open an account with L&G to invest in, say, a FTSE 100 index tracker, they waive the initial charge and you can buy the Retail (class R) units which have an ongoing charges figure of 0.83% pa.

“But if you invest through Hargeaves Lansdown fund supermarket you pay them 0.45% on all your investments, but you have access to the the Class C units which have no initial charge and an ongoing charges figure of 0.1% (which Hargeaves Lansdown then discount to 0.06%).

“So the total ongoing cost of investing through Hargreaves Lansdown is 0.45% + 0.06% = 0.51% so 0.32% p.a cheaper than going direct.”

Which Fund Supermarket should I use?

So which company is the best to use?

Richard Webb says, “I like Hargreaves Lansdown, because they offer the widest selection of funds and have a good website, but they’re not the cheapest.

Charles Stanley Direct charge 0.25% pa on all your investments and also offer a version of the L&G UK 100 tracker with on ongoing charges figure of 0.1%, so total cost through them would be 0.35%, less than half the cost of going direct.

“Once you’re on a platform you can easily trade an enormous selection of funds, ETFs, ITs, Stocks & Shares, etc”

There is also a decent platform at iShares, and Fidelity has one that they are promoting quite heavily at the moment.

WHAT DO YOU THINK?

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Neville Dalton
Neville Dalton

And here’s another example of why fund supermarkets are becoming more attractive to the small investor. Unless I’ve missed something, Santander is planning to replace its current normal dividend reinvestment arrangements, done via Scrip dividends, with a new dividend reinvestment plan (DRIP). It has not paid cash dividends for some time. My understanding is that the Scrip dividends were free (ie there was no share-purchase charge) and did not incur either Spanish withholding tax or UK income tax. Moreover, cash left over from the purchase of whole shares was held in a Santander Shareholder Account (SSA), paying 5.0% AER. This… Read more »

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