UK Investment protection scheme

PingPongSet

I want to double check below:


The section below is about investment protection from UK gov.


"
youinvest.co.uk/sharesmagazine/2018-04-26/how-are-my-savings-and-investments-protected


INVESTMENTS
If you’ve got a risk-based investment and the investment firm goes under, you will qualify for FSCS protection worth up to £50,000 if you can’t get back the full value of your investment. This applies per person, per authorised firm.
So if an authorised firm gave you bad advice or was negligent in its management of your investments, you would be covered.
However, the FSCS doesn’t protect you if the companies you invest in fail, or if you buy a fund and it performs poorly.
"
My questions:
Q 1 If I buy any fund below, and the company goes bankrupt. My investment is NOT protected?
Q2 Is it correct that the scenario in question 1 above also applies to all shares in the UK, e.g. FTSE 100/250 etc. That is, if any firm goes bankrupt, my investment is not protected?


ETFS Physical Gold - LSE:PHAU
ETFS Physical Gold GBP - LSE:PHGP
ETFS GBP Daily Hedged Physical Gold ETC - LSE:GBSP
X Physical Gold ETC - LSE:XGLD
X Physical Gold GBP Hedged ETC - LSE:XGLS
iShares Physical Gold ETC - LSE:IGLN
iShares Physical Gold ETC GBP - LSE:SGLN
Invesco Physical Gold ETC GBP - LSE:SGLP
Invesco Physical Gold ETC - LSE:SGLD
iShares Physical Gold ETC EUR - LSE:EGLN

SonOf

The section below is about investment protection from UK gov.

The UK Govt doesn't give investment protection. It will lend to the FSCS if it needs to but the scheme is not from the Govt.

Q 1 If I buy any fund below, and the company goes bankrupt. My investment is NOT protected?

None of what you have listed have any FSCS protection as they are direct holdings and not investment funds.

Q2 Is it correct that the scenario in question 1 above also applies to all shares in the UK, e.g. FTSE 100/250 etc. That is, if any firm goes bankrupt, my investment is not protected?

Correct as shares are direct holdings and not investment funds.

Alexland

Also that's an old article and the FSCS protection where applicable is now £85k.

bowlhead99

Existing thread: https://forums.moneysavingexpert.com/discussion/6035861

PingPongSet

SonOf wrote: »

None of what you have listed have any FSCS protection as they are direct holdings and not investment funds.

You mean investment funds have FSCS protection. What is investment funds? Based on below, ETF physical gold is investment funds.


". Types of investment funds include mutual funds, exchange-traded funds, money market funds and hedge funds."
investopedia.com/terms/i/investment-fund.asp

Alexland

Investopedia is not tailored for the UK investor so may confuse you.

Exchange traded assets such as company Shares, Investment Trusts and ETFs have no FSCS protection. These are 'closed ended' as they do not change in size unless the management decide to issue new shares or buy back existing shares for various reasons. Such reasons can include company expansion or managing any premium or discount to the underlying holding net asset value (NAV). ETFs are managed to avoid difference to NAV developing. These have a bid/ask spread between people buying and selling them and sometimes platforms will charge more to trade them.

There is FSCS protection on Open Ended Investment Company (OEIC) or Unit Trust (UT) funds. These type of funds (comparable with Mutual Funds in the US) dynamically grow and shrink in size in accordance with demand and so can take a couple of days to buy or sell units. Or longer to sell if they have liquidity problems with the underlying assets.

Often when we talk about 'funds' we mean OEIC/UTs not ETFs.

Generally for a new investor it's easier to stick with OEIC/UT funds.

Alex

AnotherJoe

Alexland wrote: »

Investopedia is not tailored for the UK investor so may confuse you.

Exchange traded assets such as company Shares, Investment Trusts and ETFs have no FSCS protection. These are 'closed ended' as they do not change in size unless the management decide to issue new shares or buy back existing shares for various reasons. These have a bid/ask spread between people buying and selling them and sometimes platforms will charge more to trade them.

There is FSCS protection on Open Ended Investment Company (OEIC) or Unit Trust (UT) funds. These type of funds (comparable with Mutual Funds in the US) dynamically grow and shrink in size in accordance with demand and so can take a couple of days to buy or sell units. Or longer to sell if they have liquidity problems with the underlying assets.

Often when we talk about 'funds' we mean OEIC/UTs not ETFs.

Generally for a new investor it's easier to stick with OEIC/UT funds.

Alex

But that protection is very limited. Its essentially against fraud. Its not against declines in value.To just talk about "protection" in isolation can be misleading.


Are you sure you meant to say its "easier" for a new investor to stick with OEIC/UT funds?

If you go on most broker websites you can buy an IT, an ETF or a OEIC/UT with a couple of clicks, and its no more difficult to buy (or sell) any of them.

Did you mean "advisable" or some other word? Perhaps you could make an argument why it would be advisable, though i cant think of one, but "easier" doesn't seem to make any sense to me.

Indeed its easier to buy an IT or an ETF since you own them immediately you buy unlike funds where there's often (as you say) a 2-3 day delay and you often dont know the price you are buying or selling at.



I do agree that looking at investopedia coudl be confusing for a naive UK investor since it has a strong US bias. I would suggest other sources. Lars krojer (check the spelling) Monevator and Tim Hales book "Smarter Investing" often get brought up (I have not read the latter and dont know if it might also have a US bias?)

Alexland

AnotherJoe wrote: »

But that protection is very limited. Its essentially against fraud. Its not against declines in value.To just talk about "protection" in isolation can be misleading.

Yes accepted but that was already covered in the top post so I didn't feel the need to repeat.

AnotherJoe wrote: »

Are you sure you meant to say its "easier" for a new investor to stick with OEIC/UT funds?

Rather than ease of use, which all depends on the platform button layout, it was a reference to ease of understanding. By sticking to traditional OEIC/UT funds you don't need to worry about the bid/ask spread (although some are dual priced), premiums/discounts, leverage, etc.

Alex

SonOf

". Types of investment funds include mutual funds, exchange-traded funds, money market funds and hedge funds."
investopedia.com/terms/i/investment-fund.asp

Mutual funds is an American term that is not used in the UK. Although some did try and get refer to our options that way but it doesn't work.

You are best sticking to sites that focus on the UK market. No the US.

You mean investment funds have FSCS protection. What is investment funds? Based on below, ETF physical gold is investment funds.

ETFs are direct holdings quoted on a stock exchange. Yes, they are fund like but they are direct holdings. Effectively shares.
Investment funds are unit trusts, OEICs, SICAVs, Life funds, pension funds.

All these have FSCS protection. Life and pension funds can actually have 100% FSCS protection with no upper limit. Noting that FSCS protection is less important to a knowledgeable investor compared to an inexperienced one.