Money going into UK funds hits five-year high – should you invest?

New data shows June was the biggest month for non-professional investors putting money into funds since August 2021, at a net £3.8bn, according to the Investment Association (IA).

Further data from the IA showed the UK fund industry managed £11.1tn in 2025 – the highest amount on record.

Here, we look at what’s driving this increase and whether investing in funds is right for you.

Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.

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What is an investment fund?

Investment funds pool your cash with that of other investors to give you a stake in stocks, bonds, or other types of assets. There could be fewer than 50 or more than 1,000 investments within a single fund.

If you sell your stake, you’ll make or lose money based on the change in its value. You'll also receive any regular income paid out in the form of dividends.

Funds can be less volatile than buying individual shares because you spread your risk across many different stocks or bonds, rather than relying on just one. However, you'll usually pay fees for the management of the fund.

There are different types of funds to consider: 

• Active funds are those which have a fund manager choosing specific investments.
• Passive or tracker funds aim to follow an entire index (for example, the FTSE 100). Passive funds are generally cheaper.

Funds can focus on different assets, sectors and parts of the world.

• Find out more: should you invest in funds?

Why is more money going into funds?

Despite the volatile backdrop of conflict in Iran and recent sell-offs of AI stocks, many stock markets around the world have hit record highs in the past year.

Coupled with the UK government’s campaign to get more people investing for the first time, this could be contributing to growing momentum among retail investors. 

In the most recent data from June, specific sectors saw big increases.

Recent months have seen short-term money market funds rise in popularity, including net £917.1m into these types of funds in June.

Money market funds contain short-term debts from governments or companies that have high credit ratings that are then paid back, giving returns similar to higher-paying savings accounts. They’re often used in a similar way to cash, as they’re low risk and easily accessible.

Given the reduction to the cash Isa limit from £20,000 to £12,000 for under-65s coming next April, some have turned to these in a stocks and shares Isa as a low-risk cash alternative. 

It’s worth noting though that a stocks and shares Isa that contains only money market funds would be subject to a 22% tax on any of the returns those funds generate.

There was also £837.6m going into North America funds, which primarily focus on the US stock market.

• Find out more: new Isa rules could trigger 22% tax charge from 2027

Should you follow the crowd?

Money going in and out of funds can be an indicator of how a sector has performed recently but it doesn’t mean you need to panic if you’re invested in a sector seeing a lot of money going out or in.

Similarly, just because everyone is putting money into a specific type of fund doesn’t mean that’s necessarily what you need to do too.

While investors selling their funds can negatively impact returns, these impacts are often short-term. Similarly, a lot of hype around a specific investment could drive up returns before the interest dissipates and the funds underperform.

Investing should be a long-term decision, so it’s best to stay calm and avoid impulses to copy everyone else.

Thinking about what others are doing could serve as a reminder to check back in with your investments, though and see if you’re still happy or if you want to make any informed and considered changes.

• Find out more: how to balance your investment portfolio

Are investment funds right for you?

Investing is a personal decision – there’s no right or wrong answer, but you should be sure investing suits your financial goals.

If you need easy access to the money, or are likely to within the next five years, you’d likely be better off with the best savings account you can find. But if you can afford to set the money aside, investing offers the potential for higher returns than saving, although returns aren't guaranteed and you could get back less than you invest.

If you’ve never invested before, funds can be a good way to invest broadly and spread out your opportunity to catch a winning share and lessen the impact of a losing one.

Funds with ‘UCITS’ in their name come with additional investor protections and are also clearly labelled with the level of risk they involve, on a scale from one (low risk) to seven (very risky).

As they can lower the amount of risk you take on, they can therefore also limit the scale of the reward. 

If you invested enough in the right stock, you might be able to see huge profits; just as if you invested enough in the wrong stock, you'd see a huge loss. Funds can flatten those highs and lows for a steadier experience.

• Find out more: should you start investing?