An investment fund is a form of huge capital that belongs to a number of investors used for purchasing securities collectively. These investors possess ownership over their shares. It is a form of collective investment where the money from different investors is pooled and then invested by an expert on behalf of those investors. If done correctly investment can lead you to a huge profit.
How and where should the funds be invested is actually determined and decided by the fund manager rather than the individual investors? Taking suggestions from people who are already in this business will prove to be helpful. The fund manager decides whether the investment fund should be used for buying bonds, stocks or other assets. The main responsibility of an investment fund manager is to manage the fund’s investment and ensures its good return.
Types of Investment Fund:
1. Fixed income fund: It is a type of investment fund where most part of the capital is invested in fixed income assets. The rate of return is directly influenced by the changes in interest rates. The rate of return is also dependent on the maturity period. The shorter the maturity period, the lower will be the return with low risk and vice-versa.
2. Variable income fund: It as also called equity fund where most part of the capital is invested in variable income assets such as stocks. It offers a high potential return along with a higher risk. The rate of return is dynamic and is decided by market forces.
3. Mixed income fund: It is a combination of fixed income fund as well as variable income fund but their proportion varies from each other. In this type of investment fund, the percentage of capital being invested between the two funds decides the return rate.
If the major part of capital is invested in fixed income fund then the rate of return will be low with a lower risk whereas if the same amount is invested in variable income fund then it will provide a higher rate of return with a high risk.
4. Global funds: This type of investment fund does not come with any definite investment policy so it does not fit into any of the above categories. These funds can be freely invested.
5. Guaranteed funds: These funds are guaranteed but only till a specific date of return. It comes with two variations:
- Guaranteed fixed income fund – This fund guarantees the initial capital being invested along with a fixed return on the expiration date.
- Guaranteed variable income fund – This fund guarantees the initial capital being invested along with a return but the rate of return depends on the market value.
6. Distribution fund: This fund deals with the distribution of the interest or dividends among the investors on a regular basis. It has proven to be very beneficial.
7. Accumulation fund: This fund does not deal with the distribution of dividends among the investors. Instead, the fund manager re-invests the dividend in the same company where he had invested earlier. This helps the fund’s net asset value to grow progressively.
Benefits of Investment Fund:
Investment fund offers a wide range of benefits to the investors such as:
- It has different levels of risk which makes it easy for the investors to choose from.
- It covers almost all geographical regions to be exploited by the investors.
- It offers an opportunity to multiply one’s income.
- It comes with flexible objectives which help the investors to choose their goals.
- An expert investment fund manager is there to work on behalf of the investors. Some investments come with tax advantages.
Now it has been very clear to you that an investment fund is a form of collective investment which offers a wide range of options to the investors to invest their money under the expertise of a fund manager.