What are investment funds

What are investment funds



Contents

  • 1 investment funds
  • 2 types of investment funds
  • 3 How the investment funds work
  • 4 The advantages and disadvantages of investment funds
  • 5 References

investment funds

Investment funds (English: Investment Funds / Mutual Funds) is an investment tool that is managed by specialized people in the financial market , and contributes to increasing capital by selling shares that are called units within a group of securities, and investment funds are invested The capital is in a joint package called a portfolio, which combines securities, products and other things that are compatible with the fund and shown in the prospectus. [1]

Mutual funds are also known as an investment program, whose financing depends on a group of shareholders who trade in various properties, and these funds must be managed professionally. [2] Another definition of investment funds is a financial service that relies on the presence of financial experts to invest private funds in individuals within more than one diversified company . [3]

Types of investment funds

Mutual funds are divided into a group of types, namely: [4]
  • Funds with periodic returns : (also in English: Income Funds), also known as income funds , which are interested in investing tools with fixed financial returns that are distributed regularly, and examples include bonds that suit the needs of investors in the portfolios who want to obtain Periodic returns with a minimal risk.
  • Capital Growth Investment Funds (English: Growth Funds), which are funds that invest in stocks that are characterized by capital growth during a long period of time, and this type of fund is suitable for investors who want to deal with long-term investments.
  • Funds Investment Balanced : (English: Balanced Funds), a type of investment funds that seek to achieve goals, such as getting profits and the moderate growth of capital while maintaining it. These funds are suitable for moderate investors who wish to obtain appropriate financial returns with moderate risk.
  • Impulsive Investment Policy Funds : (English: Aggressive Funds), which are similar to capital growth funds, but they invest in securities with a high rate of risk in order to achieve higher financial returns for investors, and these funds are considered suitable for the investor who bears the high risk ratios.
  • Index funds (English: Exchange Traded Funds), known by the acronym (ETFs), are a type of investment fund that depends on investment within a group of stocks , and which is characterized by its high index on the stock exchange (the stock market).
  • Market Financial Funds : (English: Money Market Funds), a short - term investment funds; they use short - term financial instruments, such as treasury bills, certificates of savings up period due to the equivalent of three months; ie 90 days, often fit these funds Investors who want to maintain high levels of liquidity.
  • Islamic investment funds : It is a group of investment funds that implement investment in financial assets in accordance with Islamic legislation, and is supervised by a committee within the financial institution responsible for managing the fund.

How to make investment funds

Mutual funds depend on applying their own business method through a set of steps, including: [5]
  • Fundraising by financial companies from investors, and then investing them in bonds and stocks in the short term in the financial market.
  • Using sukuk and securities within investment funds.
  • Investment portfolios are managed by a council that relies on an investment advisor, and each fund represents a private ownership of the investor.
  • Giving the owners of investment funds the right to buy and sell their own shares, either through direct dealing with the owner of the fund, or through the presence of investment experts such as financial intermediaries.
  • Establishing financial value for stocks on every business day, which is an obligation for every shareholder in an investment fund.

The advantages and disadvantages of investment funds

Mutual funds are affected by a set of advantages and disadvantages, and are divided according to the following: [6]
  • The advantages of investment funds: They are among the characteristics of these funds, the most important of which are:
    • Diversity: That is, investment funds provide a basket of diversified securities that contribute to the diversification of the contents of the investment portfolio.
    • Effectiveness of small accounts: Mutual funds provide many types of shares, which helps investors with small capitals buy shares appropriate to the size of their investments.
    • Professionalism in money management: investment funds are managed through relying on investment managers who have experience in this field, and companies that are specialized in managing mutual funds depend on them.
  • The disadvantages of investment funds: They are among the characteristics of investment funds, the most important of which are:
    • There is no intraday trading of investment funds: that is, the investor cannot continue trading in these funds at every moment due to the closing of the trading market at the end of the working day , which leads to the difficulty of benefiting from unexpected changes in the financial market.
    • Subject to tax : that investment funds that distribute their profits once per year are also subject to the value of the tax resulting from them, even if the investor did not receive any dividends during the year, but he must pay the tax value after the collection of the value of capital gains.
    • Participation with the group: Meaning if the investor is committed to investment transactions, this will not lead to any concern in the event of fluctuations in the financial market, but in the case of mutual funds between more than one investor, the possibility of a decline or default of one of the investors appears, which leads to negative results. It affects the performance of the fund and all investors, not just one investor.
    • Costs: That is, the investment funds generally depend on the presence of costs in all the cases that affect them, and these costs often lead to a decrease in the percentage of private financial returns in the investor; therefore, the investment fund expenditures must be reduced during the year, or those expected in the next period of time.

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