There are several different smoothed funds available in the market and each works in a different way. We’ve designed this webpage to provide you with a simple explanation of what smoothing is and how smoothed funds could help shelter your investment from some of the day-to-day ups and downs of the investment markets.

What are smoothed funds?

Smoothed funds are designed to provide steadier long-term growth. They hold a range of different investments and are designed to reduce the worry of investing by smoothing out some of the ups and downs of the investment markets – so are subject to a level of investment risk.

Smoothed funds will spread your money across a range of different investment types and geographical locations – helping to ensure your money is never over-exposed to risk in any one area.

Unlike other funds, smoothed funds undergo a smoothing process, which aims to shelter your money from some of the daily uncertainty of investing.

How they work

Smoothed funds are designed to cushion daily ups and downs often seen in investment markets – aiming to give you steadier long-term returns.

There are a number of different approaches to smoothing. The chart below provides an example of how this could work.

This graph is for illustrative purposes only

Remember, investing carries more risk than saving in a typical savings account.

Chart information

  • The blue line shows how prices can move up and down each day in line with the movement of investment markets.
  • The yellow line is one example of how smoothing can work. The line steps up and down but doesn’t experience the same fluctuations as the blue line – smoothing out the ups and downs of market movements.

So, even though you may not benefit from the full growth of the market, smoothing can shelter your investment from some of the market downturns.

There may be times when the value of your fund could fall, sometimes frequently, or significantly. For example, if there are sustained falls in the investment markets over an extended period of time. So while the fund smooths out some of the daily ups and downs, it doesn't provide any guarantees.

Smoothed funds typically:

  • Help smooth out market ups and downs
  • Spread your money across a range of different investment types and geographical locations – making sure you’re never over-exposed to risk in any one area
  • Do not provide any guarantees that you will get back the value that you paid in
  • Are not risk-free
  • Aim to provide growth over the long-term
  • Can help you build and consolidate your pension savings
  • Provide the potential for a more consistent level of regular income compared to funds that don’t offer smoothing

Remember, while investing aims to help your money grow, it carries more risk than saving in a typical savings account. The value of an investment can go down as well as up and you may get back less than was paid in.

Information on this page is not financial advice.