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How to invest in index funds in the UK?

Index Funds are a type of fund designed to track the performance of markets and indices internationally or on a country-by-country basis. Also, they can be incorporated in a Stocks and Shares ISA tax wrapper.

❓ What is an Index fund?A type of mutual fund that tracks an index
💯 The UK equivalent of S&P 500?FTSE 100
💡️ Way to invest in an index fund?Buy shares in the companies covered by the index fund or invest in ETFs or mutual funds index trackers
❓ Index funds listed on the LSE?• Fidelity 500 Index Fund (FXAIX)
• Vanguard 500 Index Investor Share Class (VFINX)
• Schwab S&P 500 Index Fund (SWPPX)

If you have been thinking about starting investing, the time has never been more appropriate. With inflation now at 9.1% and expected to rise to 11% by the end of 2022, money tucked away in ordinary savings accounts is rapidly losing value in real terms.

One of the investment options open to you is Index funds. You can invest in them via indices like the UK FTSE or the American S&P 500. So, if you want to learn more about how to invest in index funds in the UK, you have to read on.

What is an index fund as opposed to an ETF?

An Index Fund is a type of mutual fund. What are mutual funds? A mutual fund is an investment that pools money from multiple investors to buy securities with the aim of gaining a mutual advantage. On the other hand, an ETF is your own fund in your investment portfolio.

Both products are tracker funds. Rather than being actively managed funds, they are passives that simply follow a specific index. However, some ETFs can be actively managed, but the management fees are considerably higher.

Other significant differences between the two types of funds include:

  • Index funds are traded when the markets close, whereas ETFs are traded throughout the day.
  • Index Funds often have higher minimum investment amounts than ETFs.
  • Index Funds can be bought in £ or $ increments. ETFs are bought by share quantity.
  • ETFs are more tax-efficient than equity index funds.

Before we move on to how newbie investors can start investing in index funds, you can find more information on the difference between ETFs and index funds here.

How newbie investors can begin investing in index funds

Before you start investing, the first thing you should do is decide on an investment strategy. But first, you must be aware of the risk involved with investing. For example, your investments’ value can also fall and rise.

One of the best ways of offsetting risk is to invest long-term. But obviously, that ties your money up for a certain period. What if you need access to your funds in the meantime to cover an emergency or something unforeseen? That’s why it is vital to establish your short versus long term financial needs.

Once you’ve done that, you can go on to thinking about how to invest in an index fund UK product, and the first thing you will need to do is choose an investment platform.

How to set up an index fund UK portfolio

Setting up your own Index Fund is not something that a newbie investor should try. Not unless you have in-depth experience in the investment industry. You would have to:

  • Determine the index you aim to clone.
  • Calculate the percentage each stock or market sector occupies out of the whole fund and purchase the exact amounts.
  • Consider buying stocks with the largest market share to minimise rebalancing.
  • Rebalance the value of your portfolio every day.

As you can see, it is not the easiest way of how to buy Index Funds UK investors can adopt – especially if you are entirely new to investing.

If you wish to invest in index funds, you would be better off approaching a professional personal financial advice company like Moneyfarm. So whether you are considering how to invest £10,000, or if you are fortunate enough to be thinking of how to invest £100,000, the fund managers here at Moneyfarm are ready to help.

How to go about investing in S&P 500 UK index funds

The initials “S&P” stand for “Standard and Poor,” and the figure “500” represents the 500 large US companies that the S&P Index covers. It encompasses eleven sectors which include Communications, Consumer Discretionary, Consumer Staples, Energy, Financials, Healthcare, Industrials, Information Technology, Materials, Real Estate, and Utilities.

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Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.

It’s not possible to invest directly in the S&P 500. However, if you want alternative ways on how to invest in the S&P 500 from the UK, you can buy shares in the companies covered by the S&P 500, or you can buy index trackers like mutuals or ETFs that track the performance of the S&P 500 index. You will need to:

  • Locate your preferred S&P 500 ETF, index, or mutual fund
  • Open a shares trading account
  • Deposit funds in your account
  • Buy your preferred product

Following this same procedure is how to invest in Vanguard index funds UK, or other index funds listed on the LSE, such as:

  • Fidelity 500 Index Fund (FXAIX)
  • Vanguard 500 Index Investor Share Class (VFINX)
  • Schwab S&P 500 Index Fund (SWPPX)
  • iShares S&P 500 Index Fund (BSPAX)
  • Rowe Price Equity Index 500 Fund (PREIX)

Of course, you are not restricted to the S&P 500. If you prefer to go with British companies and you want like to know the equivalent of America’s S&P 500, it is the UK’s FTSE 100.

What is the best index fund in the UK?

It’s almost impossible to determine the best index tracker fund in the UK. However, Forbes recently advised that the iShares Core FTSE 100 ETF is right up there near the top of the list.

How much should you invest in an index fund?

As well as asking how to invest in an S&P 500 UK fund, you might also be asking how much you should invest in index trackers. It’s a question that only you can answer once you’ve determined your investor profile and analysed your short, medium and long-term financial needs.

Is an index fund right for you?

Index funds are only one type of investment vehicle. You can choose from many investments, including the more readily recognised Stocks and Shares ISA. Moreover, this type of vehicle is relatively easy to understand in broad market terms.

But if you’re just dipping your toe into the investment waters for the first time, you could well find that a general investment account would be a better fit.

To make the right decision, you need to talk to a professional financial adviser authorised and regulated by the Financial Conduct Authority.

Whether you are asking yourself how to invest in S&P 500 funds from the UK or whether an ETF or Stocks and Shares ISA would be more suitable, the team here at Moneyfarm can guide you on which options you can take. So call us today on +44 800 433 4574, or visit our website, for more information.


What are the advantages of investing in index funds in the UK?

You gain exposure to a wide variety of top-performing companies and industries. The long-term returns are great and consistent. Index funds eliminate having to analyze and pick stocks for hours at a time. Also, they are very liquid.

How does an Index Fund work?

An index fund will usually invest in every company listed on its index. So, for example, the FTSE 100 index mutual fund might buy shares in each of the 100 companies in the FTSE100 that is listed on the London Stock Exchange.

How can I buy index funds in the UK?

You can’t invest directly in an index such as S&P 500 or FTSE 100. However, you can buy stocks and shares in the companies listed in the S&P 500 or FTSE 100. Another way to invest in an index is to buy index mutual funds or index ETFs that track the performance of the S&P 500 or FTSE 100 index. Open an account with an investing platform, choose an ISA or SIPP account for the tax benefits, and invest in the index-tracking fund you want.

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Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.