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I invest in a large 'ethical' fund, that manages around £1b of investments. Now, I make a small monthly contribution to this fund via a Stocks & Shares ISA. Obviously a fund is already spread across multiple markets and companies. But my question, is it a good idea to split the monthly investment across multiple funds?

My initial thoughts are this will incur more management fees overall, but provide the benefit of a more diverse portfolio (assuming you invest in different types of funds that don't just invest in the same things as the other fund(s))

What are the pros and cons of doing so?

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    "My initial thoughts are this will incur more management fees overall" - What are the fees you are paying based on? Probably they are a % of money invested, so there shouldn't be any double-up. – Grade 'Eh' Bacon Jun 29 at 14:34
  • @Grade'Eh'Bacon That is true, just a % but I understand some funds charge fees for buying / selling shares as well – Cloud Jun 29 at 14:59
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    @Cloud: Read the prospectus before you invest, and don't put your money in such funds :-) As for the question, diversification. You invest in a fund that choses stocks by certain criteria. Other funds might use different criteria, so for instance I might invest in a US index fund and an international stock fund. – jamesqf Jun 29 at 16:07
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Obviously a fund is already spread across multiple markets and companies.

Your fund might be distributed across markets and companies. Other funds might not be distributed at all. Fund X might not have an international component. Fund Y might be tech heavy. Fund Z might be emerging markets.

You decide how you want to diversify your investments and then you say what funds you need to invest in to get to that point.

Now too many funds can cause you to have duplication and that can skew your diversification if you aren't paying attention. You can also have to look at minimum investment levels. So you may not be able to put money into another fund until your account gets large enough.

My initial thoughts are this will incur more management fees overall, but provide the benefit of a more diverse portfolio (assuming you invest in different types of funds that don't just invest in the same things as the other fund(s))

If the fund has a flat fee for management or charges a fixed amount per transaction your costs can go up unnecessarily if you have too many funds. But if the annual if x% of the fund balance then it doesn't make a difference if you have multiple funds.

Too many funds can be harder to track, but if you are talking about going from one fund to three or four that shouldn't be a big concern.

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  • thanks for the help! WIth so many thousands of funds to choose from, is there a decent unbiased source I can go to for filtering it down a bit? (I'm interesting in green investing btw...) – Cloud Jun 29 at 15:04

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