What are investment funds?

Investment funds - what are?

What are investment funds, how do they operate, what are their types?

Investment funds (formerly trust funds) are institutions of the so- collective investment whose sole purpose is to locate publicly collected cash in specific securities and other property rights while respecting the principle of limiting investment risk.

Open and closed investment funds

Investment funds are divided into closed and open:

Open Funds: They are characterized by a variable number of participants and a variable amount of invested funds. The investor usually buys through the brokerage unit of the unit.

Withdrawal from the fund consists in repurchase by the unit fund and their redemption. The price received by the investor is calculated on the basis of the fund's net assets per unit.

Closed-end funds: They issue certificates of deposit that are traded on a stock exchange and are not repurchased by the fund. The investment policy pursued by these funds is more risky and free than in the case of open-ended funds.

It is possible, for example, to invest additionally in shares in limited companies, currencies, forward transactions and derivative rights.

Types of investment funds

Due to its investment objectives, four groups of investment funds are distinguished:

1. Equity funds (aggressive investing) - the majority of assets are in shares; These are the most profitable funds but at increased risk.

2. Varied funds - in the portfolio of these funds the shares have a share of ca. 30% and the rest are bonds and safe treasury securities.

3. Money market funds - funds investing in short-term securities, interbank deposits, money bills.

4. Bond funds - funds that invest funds in treasury bonds, ie very safe. However, there are funds that invest in corporate bonds. Junk bonds, where profit can be very large, but with a rapidly rising risk.