Financial Products Series: Tracker Funds

The Financial Products series, to briefly explain and evaluate a wide variety of financial products/ This series should be useful to anyone who wants to gain a brief knowledge of different financial products.

This article is the eleventh in a series of 12 that outlines in simple terms different financial products, how they work, advantages and disadvantages, and how I would rate them. The Products that this series will cover are:
  2. Structured Products
  3. Cash
  4. Current Accounts
  5. Savings Accounts
  6. Annuities
  7. Certificate of deposit
  8. Options
  9. Treasury Bills
  10. Bonds
  11. Tracker funds
  12. Credit
If any of you can think of any other financial products that you feel deserves a place on this list please get in touch and let me know, or else comment below.

Tracker Funds

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A tracker fund, also known as an index tracker is a cheap and simple investment tool that copies the progress of an index such as the stock market or a particular industry within a stock market.

The index is made up from the averages of all its constituent companies share prices. Thus an index tracker or a tracker fund holds shares in the various companies in that index in the same proportion as that index. Thus a FTSE100 Tracker Fund attempts to mimic the performance of the FTSE100 index. For example if the FTSE100 is at 5000 and rises to 5500 in that day then that is a 10% rise in the FTSE100. The tracker fund will also rise by 10% as it holds shares in the all the companies in the FTSE100 in the same proportions as the FTSE100.

Tracker funds tend to be relatively cheap because unlike a managed fund there is no need for buying and selling various shares within the fund. That is because once the index tracker has been set up initially, unless there are big changes within the index (e.g. a company is downgraded out of the index and so a manager would need to sell all those shares in that company) then very little activity needs to go on in the fund. Hence very few costs and that means very little excuse to be charging customers a whole lot.


  • Cheap
  • Captures stock market performance
  • Can utilize investment ISAs


  • Does not capture the dividends made by a company
  • High level of risk as you are exposed to the stock markets
  • Value of indices can go down

Overall conclusion

An essential part of any investors portfolio. For many investors this is the rock of their portfolio and they dabble in individual shares with excess disposable income.

Score: 9

Advice: I myself do not hold any index funds. However, when I have the capital I shall be investing in a FTSE All-Share Tracker Fund. I am told that this is the best way to get exposure to as many companies as possible, giving you huge opportunities for diversification as this encompasses 600 companies. 

Readers, are Tracker Funds really the ultimate investment (as I keep hearing)?

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