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Investors use fund supermarkets because they tend to be cheaper and more convenient than buying funds direct from a provider. This guide explains how to pick the right fund supermarket for you.

A fund supermarket is a platform that allows you to buy, sell and hold investment funds. Your account is usually managed online, although some offer a phone service. You can hold your funds through the platform within an ISA. a SIPP. or a general investment account.

Youll sometimes hear the word platform used to refer to fund supermarkets, especially among investment professionals. Another term you may hear is fund broker, which means the same thing.

Popular fund supermarkets include AJ Bell Youinvest, Bestinvest, Charles Stanley Direct, Fidelity, Hargreaves Lansdown, TD Direct Investing and The Share Centre.

All fund supermarkets offer a wide choice of open-ended funds. They may also offer other investments, such as investment trusts. shares or exchange traded funds (ETFs). If you want to invest in these, youll want to make sure your fund supermarket can cater for them.

Fund supermarkets offer a number of advantages. The main two are low cost and high convenience hence the supermarket name. However, costs can vary significantly, as can the service provided, so you need to choose your fund supermarket carefully.

Costs

For many investors, the most important advantage of a fund supermarket is cost. If you buy a fund direct from the fund provider, youll commonly pay an initial charge of 4 or 5 per cent. Fund supermarkets discount this initial charge, typically to zero.

Of course, the fund supermarkets service doesnt come for free. The main fees you will pay fall into two types: annual fees and dealing fees.

Annual fees may be charged as a flat fee, for example 100 a year, or as a percentage of the value of all the funds you hold, typically somewhere between 0.25 and 0.45 per cent (if youre paying more than this, youre being overcharged). Percentage fees may be capped, so theres a limit to how much you pay. They may also be tiered, so you pay a lower percentage fee if you have more money with the fund supermarket.

Dealing fees are usually flat, for example 10 per trade. Youll pay this when you buy or sell funds or other investments.

Not all fund supermarkets charge dealing fees for buying and selling funds. Some allow you to trade for free, but this doesnt necessarily work out cheaper overall. Consider how much you are likely to pay in annual fees and dealing fees combined before deciding on a fund supermarket.

Also remember to check whether there are other charges, such as exit fees if you want to leave the fund supermarket and transfer your funds to one of its competitors. Unfortunately, most fund supermarkets charge exit fees. which are typically between 15 and 25 for every fund you hold.

Bear in mind that the fees you pay to the fund supermarket make up only part of your total cost of investing. The funds you invest in also have management charges, typically 0.75 per cent a year.

(Note: If you had an account with a fund supermarket before 2014, you may find that your fund management charges are higher typically 1.5 per cent and there is no explicit fee charged by the fund supermarket. This is because the fund supermarket will be receiving commission from the fund providers out of those higher management charges. However, by 2016, all fund supermarkets have been ordered to move their customers to lower-priced clean share classes, and charge a separate fee for their own services.)

Convenience and choice

Fund supermarkets are also favoured by investors because they offer a bigger choice of investments than would be available from any single fund management house. Typically, theyll offer more than 1,000 funds from over 100 providers.

For example, fund supermarkets will allow you to buy funds from big names such as Fidelity, M&G, Invesco Perpetual, Aberdeen, BlackRock, Schroders, JP Morgan and so on, as well as smaller houses. (Slightly confusingly, Fidelity is both a fund management house and the owner of a platform, through which you can buy funds from all well-known providers.)

However, the exact choice of funds does vary, so check that the funds youre interested in are offered on the platform before you commit.

These days, most fund supermarkets allow you to invest in shares, investment trusts and ETFs as well as funds. A few will also offer bonds and structured products .

Remember that fund supermarkets may charge you differently to hold and deal these investments. For example, many fund supermarkets dont charge dealing fees for funds, but theyll all charge them for shares. Annual fees can also vary depending on what type of investments you hold.

What Investment magazine publishes regular reviews of fund supermarkets, comparing their costs and services.

Other advantages of fund supermarkets

Fund supermarkets have other benefits besides low cost and the convenience of a one-stop shop. They allow you to have a single online overview showing your entire portfolio in one place. This is particularly useful if you use both ISAs and SIPPs.

Fund supermarkets also offer investors insight, research, portfolio-planning tools, and real-time valuation.

So is there a downside?

For most investors, the question is no longer whether or not to use a fund supermarket but which fund supermarket offers the best choice and value for money.

Still, fund supermarkets can have their drawbacks. There can be hidden fees such as exit fees, so make sure you check a fund supermarkets full price tariff to work out what costs you are likely to incur. Another problem can be a lack of phone support, which is important for those who are less comfortable dealing online.

Finally, the variety on offer can be overwhelming for some. Choosing from thousands of funds can confound even experienced investors. For more help on this, see our guide to choosing an open-ended fund .

Guide originally published: 5/4/2013. Updated: 28/10/2014.

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