While technically speaking the structures of the two types of fund are different, from an investor's perspective they are the same.

Click here to see the types of companies and assets invested in by a typical equity fund and here for a typical cautious managed fund. It is clear to see the diversification within each fund.

You can generally buy or sell your investment through a fund manager on any working day and the daily price of your "units" or "shares" reflects the value of the assets in which the fund has invested. This is because the total number of units or shares issued by the fund increases when the fund is in demand and decreases when more investors are cashing in.

Funds which are marketed to the public must be authorised by a regulator and are subject to detailed rules designed to provide a high level of investor protection. The assets are held by an independent authorised firm, known as a trustee or a depository, which oversees the way that a fund is run. Most funds available in the UK are authorised by the independent regulator, the Financial Services Authority and are covered by the Financial Services Compensation Scheme. Some funds however, are authorised elsewhere in the European Union, such as in Dublin or Luxembourg.

¹ A collective term for financial instruments whose prices are based on the prices of other (underlying) investments. They are more complex investment tools than those described and are used by fund managers to help them meet their performance objectives.