|Different kinds of investment funds|
An investment fund is the provision of capital belonging to several investors for the purpose of buying securities, while each investor has the right to own and manage his share. An investment fund provides investment opportunities, better management and lower fees for investors. The types of investment funds are:
- Mutual funds
- ETF funds
- Capital market investment funds
- Hedge funds
What is investment fund?
With the existence of investment funds, individual investors do not decide how the obtained capital should be invested. They simply choose a fund based on criteria such as goals, risk, fees and other such factors for investment. The fund manager has the task of monitoring the fund and decides what kind of secirities to keep, and how much securities should be bought or sold. The fund's scope of activity can be general or specialized. For example, a fund that tracks the S&P 500 has a general scope of activity, or Exchange Traded Funds (ETFs) that only invest in small technology stocks have a specialized scope of activity.
Unlimited shares compared to restricted shares
Most of the assets of the investment fund are related to mutual investment funds with unlimited shares. These funds offer new shares by adding more capital from the investor's side and withdraw the shares by redeeming the investors. Such funds are usually priced only once at the end of the trading day.
Mutual funds with limited shares operate more like the stock market than mutual funds with unlimited shares. Investment funds with limited shares have a certain number of shares and these shares are bought and sold. Although the net asset value (NAV) is calculated for the fund, trading is done based on the investor's supply and demand.
The emergence of exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) are an alternative to mutual funds and are an acceptable option for those traders who want more flexibility regarding their investment fund. Similar to closed-end mutual funds, exchange-traded funds (ETFs) are traded on exchanges and are priced and available during business days.
A hedge fund is a type of investment that is distinct from mutual funds or exchange-traded funds (ETFs). The hedge fund has less federal regulation and therefore has a much wider scope of activity. The Hedge fund invests in riskier investment options that include futures contracts or leverage with borrowed capital.
What is a mutual fund?
A mutual fund is a financial instrument that takes the capital of investors and invests in financial markets such as stocks, bonds and other financial markets. Mutual funds are managed by financial managers who allocate the obtained capital to sectors that increase the capital of investors. A mutual fund gives small or individual investors access to an investment portfolio that includes stocks, bonds and other securities. Therefore, each shareholder participates in the profit or loss of the fund based on the amount of his capital. Mutual funds invest in a large number of securities, and most mutual funds are part of larger investment firms such as Fidelity Investments, Vanguard, T. Rowe Price, and Oppenheimer. A mutual fund has a fund manager, sometimes called an investment adviser, who is legally required to act in the best interests of the mutual fund's shareholders.
How are mutual funds priced?
The value of the mutual fund depends on the performance of the securities bought. When buying a unit or share of a mutual fund, an investor is buying the performance of its portfolio, or more precisely, a portion of the portfolio's value. Investing in shares of a mutual fund is different from investing in stocks. Unlike the stock market, shares of mutual funds do not give their holders any voting rights. Shares of a mutual fund represent an investment in many stocks or other securities.
The price of a mutual fund is referred to as the net asset value (NAV) per share, sometimes also expressed as NAVPS. The net asset value of the fund is obtained by dividing the total value of the securities in the stock portfolio by the total number of shares. Shares are available to all shareholders, institutional investors and company employees or insiders.
Shares of mutual funds can usually be bought or redeemed at the current net asset value of the fund, but it does not fluctuate during market hours, and is settled at the end of each trading day. Mutual fund price is also updated with NAVPS settlement.
Each mutual fund has different securities in its investment portfolio, which means that shareholders have a variety of investment options. Consider an investor who only buys Google stock, and thus the investor's profit is dependent on the success of a company. Since all their capital is tied to one company, profits and losses depend solely on the success of one company. However, a mutual fund may hold Google shares in its investment portfolio, where gains and losses may be supplemented or offset by other investment options.
Different types of mutual funds
There are many different types of mutual funds available to invest in, although most mutual funds fall into one of four main categories, including stock mutual funds, capital market mutual funds, bond mutual funds, and long-term mutual funds.
1. Stock mutual fund
As the name suggests, this fund mainly focuses on stocks. There are different subcategories in this group. Some mutual funds are named according to the size of the companies they invest in:
- Major stock
Other investors are labeled by their investment approach: aggressive growth, income-oriented, value-oriented, etc. Stock mutual funds are also classified based on whether they invest in domestic stocks or foreign stocks.
2. Bond investment funds
Bond investment funds are bonds that include mutual funds that generate minimum returns and are part of the fixed income category. A fixed income mutual fund focuses on investments that pay a certain rate of return, such as government bonds, corporate bonds or other debt options. The investment portfolio of the fund generates income in the form of interest, which is transferred to the shareholders.
3. Balanced investment fund
Balanced mutual funds invest in a combination of different options, such as stocks, bonds, or alternative investment options. The purpose of this fund, which is known as an asset allocation fund, is to reduce the risk of investment options.
4. Capital market investment funds
The capital market consists of safe, risk-free and short-term borrowing instruments, which mainly include government options. The investor will not get a significant return, but the initial capital is guaranteed to be kept safe. The return in this fund includes a normal return. In this case, the amount obtained is slightly higher than that of a current or savings account.
5. Income investment funds
Income investment funds are named for their purpose: providing constant current income. These funds mainly invest in government borrowing sectors and high-end companies and keep these bonds until the desired time to provide the resulting profit. While the fund's assets may increase, the primary goal of these funds is to provide investors with steady cash flow. Therefore, most investors of such funds are conservative investors and retirees.
6. International investment funds
An international fund only invests in assets located outside the investor's country. However, international funds can invest anywhere in the world. The fluctuations of these types of funds often depend on the economy and political risks of the country in question. However, these funds can be balanced by increasing the diversification of an investment portfolio, as returns in foreign countries may not be correlated with returns at home.
7. Targeted investment funds
Such funds have specialized sectors such as technology or health care in their agenda. The fluctuation in this regard can be very high because the focus is only on one thing.
Aron Groups Investment Fund
One of the types of investment fund is Aron Groups investment fund account offered by Aron Groups forex broker. This investment fund is a profitable investment service that allows investors to earn income without making independent transactions. Investors earn carefree money by investing in this account which is managed by the fund manager (professional trader). The professional trader will receive a small fee from the investor's income for managing these stocks.
It should be noted that Aron Groups investment funds have had more than 200% profit for the investors of these funds during 10 consecutive holding periods.
These funds are held in one-month and three-month periods and give investors the opportunity to buy its shares, without any trading knowledge, and earn significant profits.
Written by: Mohsen Mohseni (Aron Groups).