investment funds
Investment funds are a tool of investment tools that are managed by people specialized in the financial market, and contribute to increasing capital by selling shares that are called units within a group of securities, and investment funds are invested And the capital in a common package called a portfolio, which collects securities, products and other things compatible with the fund and shown in the prospectus.
Investment 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 in a professional manner. Other definitions of investment funds are a financial service that depends on the presence of financial experts; To invest private money in individuals within more than a diversified company.
Types of investment funds
Investment funds are divided into a group of types, namely:
Investment funds with periodic returns: also known as income funds, are funds that are interested in investing in tools with fixed returns that are distributed regularly, and examples of these are bonds that suit the needs of investors in portfolios who wish to obtain Periodic returns with little risk.
Growth funds: which are funds that invest in stocks that are characterized by capital growth over a long-term period of time, and this type of fund is suitable for investors who want to deal with long-term investments.
Balanced investment funds: which are a type of investment fund that seeks to achieve goals, such as obtaining profits and moderate capital growth while maintaining it. These funds are suitable for moderate investors who wish to obtain suitable financial returns with moderate risks.
Impulsive investment policy funds: which are funds similar to capital growth funds, but invest in securities with a high proportion of risk; In order to achieve higher financial returns for investors, these funds are suitable for the investor who bears high risk ratios.
Index funds: known by the acronym (ETFS), are a type of investment fund that depends on investing in a group of stocks, which is characterized by a high index in the stock market (the stock market).
Money market funds: which are short-term investment funds; Because it uses short-term financial instruments, such as treasury bills and savings certificates, with a maturity of up to three months; That is 90 days, and these funds are often suitable for investors who want to maintain high rates of financial liquidity.
Islamic investment funds: They are a group of investment funds that implement investment in financial assets in accordance with Islamic legislation, and are supervised by a committee within the financial institution responsible for managing the fund.
How investment funds work
Investment funds depend on the application of their own method of work through a set of steps, including:
Raising funds by financial companies from investors, and then investing them in bonds and stocks in the short term in the financial market.
Use of sukuk and securities within investment funds.
Investment portfolios are managed by a board that relies on an investment advisor, and each fund represents private ownership in the investor.
Granting investment fund owners the right to buy and sell their own shares; Whether through direct dealings with the fund owner, or through the presence of investment experts such as financial intermediaries.
Assigning a financial value to the shares on each working day, which is an obligation on every shareholder in an investment fund.
Advantages and disadvantages of investment funds
Investment funds are affected by a set of advantages and disadvantages, and are divided according to the following:
The characteristics of investment funds: These are 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 diversifying the contents of the investment portfolio.
The effectiveness of small accounts: Mutual funds provide many types of shares, which helps investors with small capitals to buy shares appropriate for the size of their investments.
Professionalism in money management: investment funds are managed by relying on investment managers who have experience in this field, and companies specialized in managing mutual funds depend on them.
Disadvantages of investment funds: They are among the characteristics of investment funds, the most important of which are:
There is no instant trading of investment funds: that is, the investor cannot continue trading in these funds at every moment; Because the trading market is closed at the end of the working day, which makes it difficult to take advantage of unexpected changes in the financial market.
Subject to tax: that is, investment funds that distribute their profits once a year are also subject to the value of the tax incurred on them, even if the investor did not receive any profits during the year, but he must pay the value of the tax after collecting the value of the capital gains.
Participation with the group: meaning if the investor is committed to the investment transactions, this will not lead to any anxiety 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, investment funds in general depend on the presence of costs in all cases affecting them, and these costs often lead to a reduction in the investor's own financial returns; Therefore, the expenditures of investment funds must be reduced during the year, or those expected in the next period of time.