Investing: Tell me the basics

In this article, we’ll look at the basics of investing.‍

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Please note: Chip doesn't give financial advice. If you have detailed questions or are unsure about investing, you may want to seek guidance from a qualified professional.

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When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment

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What is an investment platform?

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An investment platform is a website or an app-based service that lets members (like you!) access a range of investment funds.

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They usually charge a small platform fee for providing this service. We explain more about these costs on our What are the fees for Chip investments? page.

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Chip provides an investment platform. This means we don't manage the investment funds ourselves. Instead, we've created a simple, user-friendly interface where you can:

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• Easily buy or sell units in a fund.

• Monitor your investments' performance.

• Keep track of your statements.‍

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What is an investment account? ‍

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An investment account is essentially a wrapper or structure that holds your investments. Chip offers two main types of investment accounts:

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• Stocks & Shares ISA: This is a special, tax-efficient account. You can invest up to a certain amount each tax year, and you won't pay any UK income tax or capital gains tax on the profits you make.

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• General Investment Account (GIA): This account is more flexible than an ISA, as there are no limits on how much you can invest. However, it doesn't offer the same tax benefits as an ISA, so any profits may be subject to tax.

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Seccl Custody Limited is the ISA Manager for the Chip Stocks and Shares ISA.  Fund Management charges apply. ISA limits apply. Invest £20k per tax year. Chip does not provide tax or financial advice.

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GIA proceeds are potentially taxable, subject to any annual exemption that may apply.  Tax treatment depends on individual circumstances and may be subject to change in the future.‍

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What is an investment fund?

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An investment fund is a quick and low-cost way for members to diversify their investments. Think of a fund as a big basket of different assets.

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A fund works by pooling together money from lots of individual members. It's managed by a fund manager (for Chip, that’s experts like BlackRock, L&G, and Vanguard) who invests that pooled money into a wide variety of assets.

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When you put money into a fund, you buy units. These units represent your portion of the fund’s overall holdings. When you want to take your money out, you simply sell units.‍

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Funds vs. Direct investing: What’s the difference?

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Investing in funds means your money is spread across multiple assets.

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Since some investments will perform better and some worse over time, this diversification helps to spread the risk. In theory, this aims to smooth your returns over the long term.‍

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Saving time and money

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Investing in a fund is often preferred by members who want to save:

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• Time: You don't have to spend time reviewing and pricing individual stocks. The fund manager handles that for you.

• Money: You can access a diverse portfolio without paying lots of individual commissions and fees for each asset.

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What are investments/assets?

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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.

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Assets most commonly used for investments are:

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• Stocks and shares (known as equities)

• Corporate Bonds

• Government Bonds (also known as Gilts)

• Property

• Commodities (e.g. gold, oil, steel, lumber, etc.)

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What are bonds and equities?

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Equities (stocks and shares)

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Stocks and shares are commonly called equities; these give you partial ownership in a publicly traded company.

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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.

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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.‍

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Bonds

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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.

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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.‍

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What is a unit?

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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.

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• 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.

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How are units priced?

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The unit price is worked out by dividing the total value of investments in the fund by the number of units in the fund.

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• 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.

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What is a Key Investor Information Document (KIID)?

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Fund managers provide an information sheet called a KIID (Key Investor Information Document), which includes all the important information about a fund.

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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.

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Need further help?

If you have any further questions, get in touch with our support team using the in-app chat (this can be found in the Contact us section on the Profile tab) or by email at hello@getchip.uk for further help.