Index tracking unit trusts

By THIS IS MONEY
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I'm looking for information on index tracking unit trusts. What should be my first port of call? CD, Scarborough, N. Yorks

Get information from the Association of Unit Trusts and Investment Funds (AUTIF). Clare Arber of AUTIF says: Index tracking funds try to replicate the performance of the stock market by 'tracking' one of its indices, either the FTSE 100, the FTSE All Share or even, in a few cases, the FTSE 250. Some advisers are starting to warn against the FTSE 100, however, as it is now dominated by only a few companies so you no longer get as wide a spread of risk as it once offered.

And bear in mind that your investment will never better the market's performance with a tracker. In fact you will always fall a little behind it because you have to pay charges to invest in the fund, though typically, charges on a tracker can be less than 1% of the sum you invested and often they have no initial charges at all. However, when the market falls trackers will go down accordingly - there are no managers to cushion the blow - and they are for capital growth only, because there is no way they can generate an income.

If you want to beat the market or an income you are better off with a managed fund, though they can be more risky and you pay more - initial charges of about 5% and annual charges of about 1.5% - though you can cut initial charges by going to a discount broker, or buying through Isas.

More information from AUTIF on 0181 207 1361 or www.investmentfunds.org.uk.

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