How to Invest in the FTSE 100 (UK Guide)

Last reviewed: July 2026

What the FTSE 100 is

The FTSE 100 is the benchmark index of the London Stock Exchange. It tracks the 100 largest companies by market capitalisation listed on the main market. The index was launched in 1984 with a base value of 1,000. It is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group, which reviews and rebalances the constituent list quarterly.

Like the S&P 500, the FTSE 100 is a calculation rather than a tradeable security. It has no shares of its own. Investors gain exposure through funds built to replicate its performance, not by buying the index directly.

Why the FTSE 100 differs from the S&P 500

The two indices track different economies and carry different sector weightings. The FTSE 100 has historically leaned toward financials, energy, mining, and consumer staples. The S&P 500 has leaned more heavily toward technology in recent years. This difference in composition means the two indices do not move in lockstep, and their long-term return profiles have diverged, particularly during periods when technology stocks have outperformed broader markets.

The FTSE 100 has typically carried a higher dividend yield than the S&P 500. Many of its largest constituents are mature businesses that return a significant share of profit to shareholders through dividends, rather than reinvesting for growth. This makes FTSE 100 tracker funds a common choice for investors seeking income alongside capital growth.

A further distinction concerns currency exposure. The FTSE 100 is priced in pounds sterling, and most funds tracking it for UK investors do not require a foreign exchange conversion at the point of purchase. However, many FTSE 100 constituents are multinational businesses earning a large share of revenue overseas. This means the index has indirect currency sensitivity even though the fund itself is sterling-denominated: a weaker pound can boost the reported earnings of overseas-facing FTSE 100 companies when translated back to sterling, and a stronger pound can reduce them.

The five-step process to invest

Step one is choosing an account type. A Stocks and Shares ISA shelters gains and income from UK tax. A SIPP adds tax relief on contributions but restricts access until a minimum pension age. A general investment account has no contribution limit but no tax shelter beyond the standard annual allowances.

Step two is opening an account with an FCA-regulated investment platform. This requires identity verification under UK anti-money laundering rules, typically involving proof of identity and address.

Step three is depositing funds, either as a lump sum or through regular monthly contributions. Many platforms support automated recurring investments.

Step four is selecting a fund. Multiple providers offer FTSE 100 tracker funds and ETFs, differing in structure, ongoing charge, and whether income is distributed as cash or reinvested automatically.

Step five is placing the trade. ETFs trade on the exchange throughout the day at a live price. Index funds, sometimes called unit trusts or OEICs, are priced once daily based on the fund's net asset value at a set valuation point.

Costs to check

The Ongoing Charges Figure is the standard measure of a fund's annual running cost, expressed as a percentage of the amount invested and deducted automatically rather than billed separately. Passive FTSE 100 trackers typically carry low ongoing charges compared with actively managed funds, since they are not paying for stock selection research.

Platform fees are separate from fund charges. Some platforms charge a percentage of assets held, others charge a flat monthly or annual fee, and some charge per trade. For a FTSE 100 tracker held for the long term with infrequent trading, a flat-fee platform structure can work out cheaper than a percentage-based one once the portfolio grows past a certain size, though the exact crossover point depends on the specific fee schedules being compared.

Tax treatment

Inside a Stocks and Shares ISA, both capital gains and dividend income from FTSE 100 funds are free of UK tax, and nothing needs to be declared on a tax return. Inside a SIPP, contributions attract tax relief at the saver's marginal income tax rate, growth within the fund is untaxed, and withdrawals in retirement are taxed as income above the tax-free lump sum, which is typically 25 percent of the pot up to a monetary cap set by HM Revenue and Customs.

Outside a tax wrapper, in a general investment account, gains above the annual Capital Gains Tax allowance of £3,000 for 2026/27 are taxable at the investor's applicable rate, and dividend income above the £500 dividend allowance is taxable. Both allowances are set by HM Revenue and Customs and are reviewed at each Budget.

Income versus accumulation funds

FTSE 100 tracker funds are typically available in two share classes. An income, or distributing, class pays dividends out to the investor as cash, usually quarterly. An accumulation class reinvests dividends automatically inside the fund, increasing the unit price rather than paying cash out. The choice affects cash flow and, outside a tax wrapper, the timing of dividend tax liability, though the underlying investment exposure is otherwise identical.

Concentration and sector risk

Although the FTSE 100 holds 100 constituents, market-capitalisation weighting means the largest handful of companies account for a disproportionate share of the index's total value and movement. A small number of sectors, historically financials, energy, and materials, have often represented a large combined weighting. This means the index's performance can be heavily influenced by conditions in a few industries, such as oil prices affecting energy constituents or interest rates affecting banks, rather than reflecting the broader UK economy evenly.

How dividends flow through a FTSE 100 tracker

When a FTSE 100 constituent company pays a dividend, that payment flows through to the tracker fund in proportion to the fund's holding in that company. In an income share class, these dividends are pooled and paid out to investors on a set schedule, typically quarterly, as cash. In an accumulation share class, the same dividends are used to buy more units in the fund automatically, so the investor's holding grows in value rather than receiving a cash payment. Over long holding periods, dividend reinvestment has historically made up a substantial share of the FTSE 100's total return, alongside capital growth in the underlying share prices.

The dividend yield of the FTSE 100 as a whole moves over time as constituent companies change their payout policies and as the index's price level changes relative to the total dividends paid. A falling index price with unchanged dividends increases the yield; a rising index price with unchanged dividends reduces it. This means yield figures quoted for the index are a snapshot, not a fixed feature of the investment.

Lump sum versus regular investing

A FTSE 100 tracker can be bought as a single lump sum or built up gradually through regular monthly contributions, sometimes called pound-cost averaging. Investing a lump sum immediately exposes the full amount to market movements from day one. Spreading contributions over several months means each instalment buys units at a different price, which averages out the entry point over the investment period rather than committing the full amount at a single price. Neither approach is inherently better in all circumstances; the choice depends on how much cash is available upfront, the investor's comfort with short-term price swings, and how the money is expected to be needed over time.

Comparing similar FTSE 100 tracker funds

Because passive FTSE 100 trackers all aim to replicate the same index, their returns before charges should be very close to one another and to the index itself. The practical differences between competing tracker funds tend to come down to the Ongoing Charges Figure, the fund's tracking error, meaning how closely its actual return has matched the index after costs, whether it uses physical replication by holding the underlying shares directly or synthetic replication using derivatives, and whether an income or accumulation share class is available. None of these differences relate to which fund is likely to perform better, since they are all targeting the same index outcome; they relate to cost and structure.

Frequently asked questions

Can UK investors buy the FTSE 100 directly?

No. The FTSE 100 is an index calculated by FTSE Russell, not a tradeable security. UK investors access it through an ETF or index fund built to track its performance.

How often does the FTSE 100 constituent list change?

FTSE Russell reviews the index quarterly, in March, June, September and December, adding or removing companies based on market capitalisation ranking.

Does investing in the FTSE 100 involve currency risk?

The fund itself is priced in sterling with no direct conversion cost, but many constituent companies earn revenue overseas, so the index has indirect sensitivity to currency movements through those companies' reported earnings.

What is the difference between an income and accumulation FTSE 100 fund?

An income fund pays dividends out as cash. An accumulation fund reinvests dividends automatically within the fund. Both track the same underlying index.

What account can hold a FTSE 100 fund in the UK?

A Stocks and Shares ISA, a Self-Invested Personal Pension, or a general investment account can all hold FTSE 100 ETFs and index funds.

Do UK investors pay tax on FTSE 100 dividends?

Inside an ISA or SIPP, no UK tax is due. Outside a tax wrapper, dividend income above the annual dividend allowance is taxable at the investor's applicable rate.