investment-fund

Investment fund

An investment fund or mutual fund is a collective investment institutions (CII) that collects money in the form of contributions to invest jointly.

An investment fund, by joining as a single entity, pursues a very simple objective: to achieve a higher return than to invest separately. It should be mentioned that it is generally intended for any type of investor. While it is true, there are many types for different investor profiles.

Let’s imagine that we managed to convince 10 friends to invest together. The first question that would arise is who out of the 10 knows anything about finances. Let’s assume that no one has that knowledge. The solution would be to hire a company specialized in investments, we are going to call this “management company”. The second point that would be debated is who is going to keep all those assets or money, since the human being is distrustful by nature, the solution will be to put him in a “depository entity”. Their only purpose will be to safeguard the money of the 10 friends.

All the people who come together under the umbrella of the fund are called participants and the investor’s return is established based on the collective results. Investment funds can be dedicated to investing in financial products, stocks, bills, bonds, derivatives, currencies, ETFs, other funds … or in non-financial products, real estate, art, etc.

What is the minimum capital to invest in an investment fund?

The funds have no entry limit, the more we are the better for everyone, but in some cases they do force you to enter with a minimum contribution, these are some examples:

Investment fundsMinimum Contribution (€)
Aberdeen Global II Euro Govt Bd A2200,000
Allianz Enh Short Term Euro I EUR1,000,000
Amundi Fds Bd Euro High Yield IE-C500,000
BNY Mellon S&P 500 Idx Tracker To EUR5,000
Dexia Eqs L France C Acc30,000
Fidelity America E-Acc-EUR200
HSBC GIF US Equity A Inc30,000
Henderson Horizon American Eq X22,500
Heptagon Yacktman US Equity A15,000
ING (L) Invest US High Div X EUR Hdg200
INTECH US Core A EUR Acc2,500
Invesco UK Equity E500
JPM America Equity A (acc) -EUR (Hdg)35,000
M&G North American Value USD A1,000
Pioneer Fds US Fundamental Gr C EUR ND200
Income 4 FI Bag24
Income 4 USA FI10

Investment funds offer many tax advantages to taxpayers, mainly due to the tax deferral of capital gains, since the sale of shares in one fund will not be taxed when the amount obtained from them is transferred to another investment fund.

There are thousands of investment funds and for this there are many agencies that try to rate each of the funds to help us know which fund to invest in. The most famous fund analysis company is Morginstar and its stars have become a staple of investment fund analysis.

What and who forms an investment fund?

An investment fund is made up of four main components:

Participants

Unitholders or investors are those people who invest their money. Their capital goes to the common assets of the fund and in return they receive shares of the fund in proportion to what they invest.

The funds are flexible, you can enter at the time of creation or afterwards. In the same way you can withdraw totally or partially at the time you want.

Participations

The units are the equal parts into which the assets of an investment fund are divided, this number of units is not fixed, it depends on the purchase of units (subscription) or sale (redemption).

Consequently, the value of the units also varies. The value on a specific day is called the net asset value of the investment fund. For this reason, units are negotiable securities, but they are not usually traded on any market. In this sense, it is the management company itself that sells or repurchases the shares.

Management company

The management company is who administers and manages the fund, determines which investment policy is to be followed. That is, where the assets of the fund formed by the contributions of the participants will be invested.

Each investment fund has a single management company, although it can manage different funds. The managers charge subscription and redemption fees (which can be as high as 5%) in addition to performance fees, management fees, control of the custodian company, accounting and reporting on a regular basis to the CNMV.

Depository company

It can be a bank, savings bank or securities company. Its function is to guard the fund’s assets, which may be assets or cash, and it also performs control functions over the manager, for the benefit of investors.