Is it a share or is it a fund?

Investment funds are great for spreading your risk. The trouble is, investors who are used to trading shares often find them awkward to move in and out of. Initial charges and the fact prices are fixed just once a day can be stumbling blocks.

But an alternative is on its way. Soon it will be as easy to invest in a sector or an index as it is to buy shares in an individual company. A new investment product which looks like a share but acts like a fund is about to hit the UK market.

Barclays Global Investors hopes to launch the UK's first exchange-traded funds (ETFs) - called "iShares" - later this year. ETFs are basically funds of shares which are traded on a stock market. Over the next 12 months, BGI says it intends to introduce a range of different iShares.

It is still waiting for regulatory approval from the Financial Services Authority, so details about the new products are still patchy. But it seems likely that there will be iShares based on the FTSE 100, others based on different industrial sectors, and some based on geographical regions within Europe.

And the London Stock Exchange has said it will even create a new market, called extraMARK, for new products like ETFs. The market will go live once iShares do, a spokeswoman for the London Stock Exchange says. More of the products are bound to follow, with other big financial institutions following BGI's lead soon.

Investment funds such as investment trusts have been around since the 19th century. But exchange-traded funds, say their providers, have certain advantages over these more established options - they are cheaper, more flexible and more accessible. Though new to these shores, ETFs have become popular investment instruments in the US since they were first introduced ten years ago. BGI already has 18 ETFs in the US and plans to launch a further 36.

One reason why iShares are bound to be cheaper than buying shares in an investment trust, for instance, is that there will be no stamp duty to pay when you buy them. BGI managing director John Demaine says: "It is a function of the structure... the company you are investing in is not a UK resident company." However, unlike offshore investment trusts, iShares will be regulated by the FSA.

In theory, the cost of ETFs should be even lower than tracker funds because there is no management as such. But this advantage is debatable because as opposed to unit trusts, exchange-traded funds must be bought through a broker and there are expenses which an ETF has to cover, including the stamp duty on the underlying shares. BGI has not yet said how high expenses on its iShares will be, but they could be between 0.18 and 0.75 per cent.

Tony Oxley, adviser at stockbrokers Redmayne Bentley, says these new products "are a good way to play the market without having to worry about specific stocks".

They will be more liquid and easier to trade than shares of investment trusts, where buyers or sellers have to wait for the 12 o'clock price, he says.

The shares of ETFs will be priced at as little as £10, making them accessible. Unlike investment trusts they will not trade at a discount or premium to the net asset value of the underlying shares.

This is because they use an open-ended structure where share price directly reflects asset value.

Mr Demaine admits the new products could take some time to catch on. "As with anything as new as this, we're not expecting overnight success."

Claire Arber, of the Association of Unit Trusts and Investment Funds, thinks the impact of the new products on unit trusts will be marginal and IShares will appeal to "more sophisticated investors", for instance on-line traders.

Daniel Godfrey, director general of the Association of Investment Trust Companies, says: "For some time you won't get the ability to save in these through regular savings, and I think investment trusts are likely to give people a slightly more accessible investment, particularly because of the ISA (Individual Savings Account) wrapper."

BGI has said iShares will be capable of being included in an ISA, although details are not yet clear.