Investment Fund

An investment fund is a financial company that makes collective investments in securities. The purpose of an investment fund is to collect the capital of investors and collectively invest it in financial instruments, for example, stocks and bonds. Investment funds facilitate the accumulation of personal savings for various purposes. In addition, investment funds increase the availability of institutional and personal savings, allowing companies to raise funds for projects that contribute to development and job creation.

Understanding Investment Fund

An investment fund is considered to be a supply of capital relating to a plurality of investors, intended for the collective buying of securities, at the same time, each investor retains possession and control of its shares.

An investment fund allows the investor to receive a number of advantages that he would not have received if he had invested on his own. For example, benefits include significant management experience and lower investment fees.

More about Investment Fund

The choice of an investment fund takes into account various factors and the individual goals of the investor. In investment funds, an individual investor is not required to decide how to invest the fund's assets. Decisions on the purchase / sale of investment fund securities are made by the fund manager, based on an analysis of the behavior of particular assets.

An investment fund can take the form of an index fund and cover, for instance, the S&P 500 index, or it can be narrowly focused as an ETF, which invests in shares of the technology sector.

Most investment fund assets are owned by open-ended mutual funds. Massachusetts Investors Trust Fund is considered the first mutual fund of this type in the industry, and was founded in 1924. The release of new shares is carried out by the fund as soon as investors contribute money to the pool, and withdraw shares as they are redeemed. Funds are evaluated once at the end of the trading day.

Closed-end funds are more like stocks in nature, which are considered to be a managed investment fund responsible for issuing a specified amount of securities traded on the stock market. This fund trades based on investor supply and demand at a premium or a discount to its net asset value (NAV).

The most common forms of Investment Funds

There are several types of investment funds: mutual funds, exchange-traded funds (ETFs), money market funds, and hedge funds. Let's take a look at the two most popular ones.

ETFs. Exchange-traded funds have become an alternative mutual fund option for traders and investors due to their flexibility. Along with closed-end funds, ETFs are traded on an exchange and are available for trading during the day. Numerous mutual funds have exchange-traded funds analogues. For example, the Vanguard S&P 500 is inherently the same fund with an opportunity of buying and selling intraday. Exchange-traded funds often have the extra advantage of lower expense ratios compared to their mutual funds. The SPDR S&P 500 was the first ETF to appear in the US in 1993.

Hedge funds. It is possible to single out a type of investment that differs from mutual funds and exchange-traded funds, which called a hedge fund. This type of fund is available to accredited investors and is actively managed. Since the hedge fund is subject to less federal regulation, this type of fund is available for investing in different classes of assets, as well as using a wide variety of strategies. In addition, hedge funds invest in riskier assets, such as futures and options, which can also be bought with leverage and borrowed money.