Tracker Funds

The investment the pro's don't tell you about...

Tracker funds (also known as index tracker funds) are investment funds which work by simply tracking a set index. A typical index would be the FTSE 100 share index (that's the shares of the biggest 100 UK companies which you see mentioned at the end of the nightly TV news).

Tracker Funds are said to be one of the best ways to invest your money but you probably won't have heard this before - for a very simple reason. There are no fat fees to be made by the porsche driving city boys because there is no need for active fund management.

Normal investment funds require a fund manager, to decide where to invest your money. They need to earn about a million quid a year for the hassle of it all. (That'll be a million quid of your money, thanks).

The effect of the annual management charges on your investment fund has a huge impact on what you get back. The Financial Service Authority (FSA) - the City's Watchdog - published a research paper entitled "The Price of Retail Investing in the UK". This found that between 1987 and 1999, on average a consumer would have needed to pay �1.50 to ensure that �1 was invested in the market.

However, tracker funds simply go up or down in line with the performance of the agreed "benchmark" index (eg the FTSE 100 Share index or whatever is being tracked).

They cost a fraction of managed funds.

Fans of tracker funds claim they're not only cheaper but that they're also more successful than the funds that are managed by the over-paid fund managers.

As the Buddha of the small investor, Warren Buffet, said

"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals."

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