Investment funds are a collective investment instrument made up of a large number of investors, known as 'unit holders', who contribute capital to the fund through 'units'.
The funds are created by a fund manager which identifies opportunities according to the guidelines and strategies of its predefined investment policy (expected return and potential risk). Regardless of the investment policy, all funds, without exception, diversify their investment across different types of assets to reduce the risk.
Diversification is an important point to keep in mind. Investors can use the same fund to distribute their money across different markets and assets to avoid concentrating the risk in just a handful of instruments. The more diversified the fund, the less risk and volatility it will have, and the easier it will be to offset any losses from one type of asset with the gains from another type.
Investment funds are made up of assets (securities and cash) divided into units. Investors make contributions and delegate their investment decisions to professional managers, always with the aim of obtaining the maximum possible return based on the risk they are willing to assume.
A fund may decide to invest in a wide range of assets, such as bonds, derivatives, currencies, stocks, real estate, and so on, as well as in different geographical areas. The expected return is conditioned by the investment decision in riskier transactions like the purchase of equities. Conversely, more conservative investment policies with a lower expected return invest in fixed income. In any case, investment funds are always managed by professionals with proven experience in the markets and assets in which they invest.
In addition to the manager, there is another crucial figure where investment funds are concerned: the depository. This is the body responsible for safeguarding the fund and exercising certain control functions over the fund manager.
But what really sets funds apart from other investment products is that they provide private investors with a gateway to otherwise relatively inaccessible markets and investment options, usually restricted to major investors. Another advantage is that since investment funds involve many small investors, in practice they are managed under the same conditions as those offered to major investors. As a result of such a large number of investors, the fee conditions and access to markets are extremely beneficial. This is what is known as economies of scale.
With multiple types of investment funds, investors can always find one to meet their needs, regardless of their risk profile. And since nowadays is it possible to invest very small amounts, access is open to everyone.
At Bankinter you'll find a wide range of national and international investment funds suitable for all risk profiles, and of course with the guarantee of one of the most internationally acclaimed fund managers: Bankinter Asset Management.