What are investment funds?
Investment funds are a managed fund that gives you exposure to a range of assets such as shares, bonds, property, cash or a mixture of them.
Investment funds can either invest in a range of assets or in one type of asset. If an investment fund invests predominately in one type of asset, they will often be referred to as an asset fund. For example, an investment fund that predominately invest in bonds would also be referred to as a bond fund.
When researching an investment fund to invest into, you will be able to see the breakdown of the assets that the fund invests into through their prospectus.
How investment funds work is they pool together the funds from multiple investors and give you a stake in the overall portfolio. This stake is usually referred to as a unit or subscription in the fund. Investment funds usually pay income like a dividend however they are called ‘distributions’. These ‘distributions’ are paid periodically.
The price of the subscription in the fund will often fall or rise in value in line with the assets inside the fund. For example, if you’re invested in a bond fund and bond prices go down, then the ‘distributions’ value can fall, and the subscription price of the fund can also fall in value. Similarly, if bond prices go up, then the ‘distributions’ value can also rise and likewise, the subscription price of the fund can rise.
Investment funds enable you to spread your risk and often for less cost than buying the assets directly. Investment funds can either be active or passive which is determined by the fund manager.
What are active and passive investment funds?
The two main types of investment funds are active and passive.
Active means that the fund managers make regular investment decisions on your behalf, such as which shares to buy and sell and at what times, with the aim to generate higher returns than a specific market or index that the fund is tracking.
The opposite of active investment funds are passive investment funds which track a specific market or index in an attempt to match its returns. The most common type of passive investment funds are Exchange Traded Funds (ETFs), however ETFs can also be actively managed.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.
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