An investment fund is an opportunity for investors to create more streams of income for themselves through dividends.
We all know that everyone in their capacity seeks out ways to put aside an amount of money or even make the funds in their possession multiply.
These ways can come through investing your funds in an investment fund or any other way that deems fit.
So, you can invest your funds individually if you know a legit means, or join a group of other investors and together, invest your collective funds for a greater interest.
Say you are just gearing up to step into the world of investment and want to know about investment funds. Here you go.
What is an investment fund?
An investment fund is a collected fund from investors usually sent off to different investment vehicles. Again, it is a method of collectively putting funds together with other investors into a secured investment scheme.
Though everyone still maintains their shares, the contributors do not have a say over the risks involved.
Before the investors commit their collective funds, they will make a decision on the appropriate investment security based on factors they believe will be beneficial to everyone.
With this, investors enjoy a wider variety of investments and lower investment fees.
Furthermore, there are different types of investment vehicles available to investors depending on their agreed financial goals.
Investors can decide to use a public-managed investment fund or a privately sold investment vehicle.
How do investment funds work?
A group of investors pools up their capital through buying of shares. This way, each investor becomes a shareholder.
The shares they all bought may begin to do well, or go bad. In the right language, they may start to rise or fall. This time, investors will not have power over the investment.
That is why they look out for good investments and companies before putting their funds. Investments done in such manners always come with a low risk of loss.
Types of investment fund
You see, investment funds come in different shades, all regulated by securities either for short terms or for long terms. Some of the popular investment funds that are profitable to investors include:
A mutual fund is a type of investment fund that can hold many investors’ money in different securities. This type of financial vehicle with lots of investment holding is also known as an investment portfolio.
Mutual fund pools many investors’ money together and put it into security like stock. So, when an investor buys a share of a specific mutual fund, the share and its dividends belong solely to the investor.
More so, investors use mutual funds mainly because of the favorable factors associated with them. You can invest in a mutual fund with a very low amount of money. This is one of the reasons that made it so popular among investors.
Also, the mutual fund investment can be in financial securities like government-regulated companies. This way, the investment risks become minimal.
This type of investment fund makes investing less risky and highly beneficial because the professionals have done the investment homework for you.
Meanwhile, pulling out your shares comes with easy steps whenever you need to.
Types of mutual funds
- Stock funds
- Money market funds
Exchange Traded Funds (ETFs)
Exchange traded funds (ETFs) are becoming a popular topic among investors in today’s world. Though it operates closely like mutual funds, it still have features that differentiate them all together.
Exchange traded funds also pool the investors’ money together and invest it into legal securities. The difference here is that ETFs can track the prices of commodities or even other securities.
Exchange traded funds prices are not steady, they keep on changing, and they can be sold on the stock exchange market.
Types of Exchange Traded Funds (ETFs)
- Industry ETFs
- Currency ETFs
- Passive ETFs
- Active ETFs
- Stock ETFs
- Bond ETFs
- Commodity ETFs
- Leveraged ETFs
A hedge fund is another type of investment fund. These types are privately managed by experts who use risky strategies to create investments.
They make risky, yet professional money decisions that are expected to yield higher than the average investment scheme. Generally, investors consider this a risky investment move.
Very wealthy investors are those deeply involved in hedge funds investment,
Because of the high risk and investment decisions, the initial amount for investing must be on the high side. Unlike mutual funds with low risk and low investing amounts, the hedge fund begins with and demands high investment fees.
However, it has similarities with other investment funds like pooling investors’ money together but with the end goal of making high profits.
Types of hedge funds
- Value hedge funds
- Global macro hedge funds
Benefits of investment funds
The main benefit of using an investment fund is allowing an expert in the game to manage the investments.
Instead of using your layman’s knowledge of running your investments with others, the investors employ a professional who has an in-depth knowledge about the field.
The manager makes decisions on low-risk investments and how to diversify the pooled assets to get great returns for everyone.
Another beneficial feature of the investment fund is the ability to diversify investments. Diversifying helps to acquire more returns for all the shareholders. so, should one investment fail, other ones will win.
Again, most investment funds offer low risks. The way the assets are diversified helps to reduce risks and general bad investments and losses.
After an investment round, investors and managers of investments make decisions from the previous investment to know what must be changed for their current investment goal.
In summary, finding ways to invest your money without risk is almost impossible. However, what is possible is making an investment decision that comes with low risks.
Except you are among the very rich or a high-risk investor, it means losing out will not affect you mentally and financially.
But if you belong to careful investors, there are investment funds with very low risks. Those you can invest in and sleep with both eyes closed.