Investment fund – a legal person, which can be used by any entity to multiply capital. This is a customer asset managed by specialists. The task of a specialist (licensed investment advisor) is to invest the money entrusted to him in such a way as to achieve the highest possible profit for fund participants. Most often, for each money management company (investment fund association) many analysts and several managers work.
Participation units (open-ended fund) or investment certificates (closed-end fund). Their number shows the share in the assets of the fund. An open-end investment fund is obliged to measure the value of the participation unit on a daily basis. The entity’s value shall be made public. Depending on the risk we accept and the length of the investment period, you can choose from a variety of investment fund offers.
There are many benefits from investing in investment funds. It is certainly the most attractive fact that, for the small amount of money we have to pay for our participation in the fund, we have access to foreign capital markets and commodity markets when funds offer such packages. Our money is managed by professional managers, and the whole portfolio is highly diversified, so we are relatively less risky than investing directly on the stock market.
We also incur lower costs, as a result of the fact that brokerage houses charge commissions for each transaction in funds, while we pay only a management fee. Funds are certainly more profitable than deposits, so in times of strong boom they are able to bring us more than average profits. We also save time and do not need to know too much about the capital market.
How to choose the best investment fund for us?
First of all, we need to set our investment targets, depending on what we save, we can determine the type of instrument and the level of risk we accept. However, it should be remembered here that every investment even in the fund is burdened with some risk and should be taken into account with a loss. In addition, it is a good habit to determine the amount of loss we accept.
Secondly, investment time. Investments in funds are treated rather as long-term investments. Therefore, when investing in stocks, it is best to „freeze” the funds for more than 5 years will allow to avoid periodic fluctuations, and in order to make a medium term investment, it would be necessary to look for a bond fund. When investing in the short term, usually up to 1 year, the best choice will be a money market fund.
Thirdly, determine the level of profit we plan to achieve.
After we have defined our investment profile, you can start to search various offers. What do you pay attention to? An investor should pay attention to the investment opportunities of a given fund, ways and dates of exit from the investment, the composition of the portfolio of the selected fund in relation to its competitors, the amount of the handling fee and other costs related to participation in the fund, and again it is best to relate these data to the competition.
There is still room for attention to the rating rating of the fund by special rating bodies. Unfortunately, not all funds have a rating. The fund’s history should be tracked if the fund is now yielding decent profits and there is a boom in the marketplace to see how the fund behaved during the recession. There are plenty of websites on the Internet that compare fund performance and publish current unit valuations.