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Investment basics | Investment FAQs

Whether you're an investment beginner, or want a quick refresher, here's a speed run through of the fundamentals of investing.

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, this 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 BlackRock’s 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) 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. 

What is a managed fund?

With a managed fund, investors’ money is pooled together and is used by a fund manager to invest on behalf of all investors in the fund. By pooling funds, investors can gain access to investment opportunities that they may not be able to access if acting on their own.

What is an ETF?

An exchange traded fund (or ‘ETF’ for short), is a term you’ll see a lot in the world of investing. To put it simply, they offer investors an easy way to access a range of investment options pooled together in one fund, rather than buying each one individually. Some of the key attractions of investing in ETFs are low cost, choice and simplicity as they are as easy to buy and sell as a stock.

They might track a specific index (e.g. FTSE 100) or be geared towards a specific market (e.g. Healthcare innovation)

What is an ethical fund?

Ethical funds will look to only purchase shares or bonds from companies designated as being socially, environmentally and morally responsible and avoid organisations and sectors that represent negative Environmental Social and Governance (ESG) characteristics (more on that below) and don’t align with the values of the individual choosing to invest.

These funds will be geared towards the advancement of “positive ESG characteristics” with potential for worthwhile environmental and social outcomes. e.g. a fund investing in clean energy technology.  

What does ESG mean?

Environmental, Social, and Governance refers to the three key factors in measuring the sustainability and societal impact of an investment in a company or business.

Factors taken into consideration when applying ESG characteristics include contribution a company makes to climate change through carbon emissions, human rights and labour standards and if a corporation is being run in the right way.

Two of our funds offered through ChipX “Ethical X” and “Clean Energy” are guided by these principles with assets within this fund required to meet ESG related criteria. BlackRock have put together these funds and it is their view that these funds reflect ESG characteristics.  

It's important to note sustainable, or ESG-focused investing carries risks like any other investments, yet emerging trends show that investors can take a sustainable approach while pursuing traditional financial goals.

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's 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. 

Read more about investments

When investing your capital is at risk

Remember your Capital is at Risk and past performance is not a reliable guide to future returns. The value of your investment can go down as well as up and you might get back less than you originally invested.

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