What Is and How An Investment Fund Works?

Investment Fund - Complete Controller

Investment funds are among the most attractive products to grow your savings due to their versatility and high diversification capacity. Before signing any contract, it is important to clarify some basic concepts. People consider such funds a mutual fund or an investing vehicle. It has an asset portfolio that investors purchase. As a financial professional, you can manage your assets by establishing mutual funds. You can also attempt them to produce returns on investment for their investors. Most retired people use investment funds and save their money in an individual retirement account. Exit Advisor

What is an investment fund?

The investment funds are Collective Investment Institutions that add the contributions of many savers to manage them through a single-vehicle.

A fund will invest in different assets to obtain maximum profitability within its investment policy. To understand it better, a fund takes the money from its savers and moves it by buying shares, bonds, treasury bills, and other funds.

In this sense, there are different funds, depending on where they invest and how they do it. Thus, one can speak of fixed income, variable income, mixed, global, guaranteed funds of funds, or real estate funds. At the same time, it is possible to distinguish between passive or active management funds and accumulation and distribution funds.

Those who participate in the funds

It is also necessary to know who is involved in its operation to understand how an investment fund works.

Everything starts with the participants, that is, the savers. The unitholders are the fund’s owners, which divide its assets into shares.

A management company manages the fund as its name indicates who manages the fund and who decides how and where the money is invested. Cubicle to Cloud virtual business

More than one fund manager cannot manage a fund, but a fund manager can have several funds.

In addition to the manager, there is the figure of the fund’s depositary, who will be the custodian and monitor the assets that make up the fund. This entity must be registered with the CNMV.

How an investment fund works

The basic operation of an investment fund is very simple. The participant who wants to invest acquires shares of the fund. The manager is responsible for making money, and the fund grows.

The shares are the aliquots or parts that form a fund. Unlike the actions of a company, it is not a fixed number since, at any given time, there may be someone who sells theirs or who buys new ones.

The price of each share will be determined by dividing the fund’s assets between the number of shares, which will be the purchase or sale value at a particular time. It can vary by the entry or exit of investors or by changes in the market value of the assets that make up the fund. The latter will affect the performance you get from a fund. As an investor, you can choose to withdraw your money from the fund at any time. However, some have specific windows for withdrawal. Download A Free Financial Toolkit

Commissions of the funds

Like most financial products, mutual funds charge a series of commissions to the unitholders. These commissions have to do with both operations and custody. These commissions are marked by law and can never exceed the following percentages for each of the following concepts:

  • The subscription fee is paid to the fund manager for investing in the fund and is calculated as a percentage of the capital invested, which means that in the end, you invest less than you think.
  • The reimbursement commission is charged when selling the fund’s holdings.
  • The management fee is paid to the manager for their services, investing the fund’s money. This commission is accrued daily and is already deducted from the net asset value. In other words, it subtracts from what your shares are worth. In general terms, active management funds will be more expensive than passive management funds.
  • A commission for success can be added to the management committee, which will subtract up to a maximum of 9% of the profits obtained by the fund.
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