These products are professionally marketed and managed by a management company in accordance with a specific investment strategy aimed at earning the maximum possible return. The fund manager will charge the unit holders a fee for performing these services.
The funds are divided into units containing the assets of the fund. Each unit holder (or investor) will have a number of units, depending on the money they have invested in the fund. The net asset value of the units is equivalent to their quoted price from time to time: As a collective investment institution (CII) is made up of different assets, its overall value will depend on the performance of these assets. It will therefore grow in value if the equity portfolio performs well, but will drop in value if the portfolio experiences losses.
They also allow unit holders to trade in any market in the world (emerging, global, corporate and even sectoral); something beyond the reach of individual investors. They may also do so in any listed asset (bonds, equities, currencies, derivatives, real estate, commodities, etc.), subject to the investment criteria of each of these products.
Types of investment fund
Investment funds come in different shapes and sizes and therefore suit almost any investor profile.
Some funds invest in equities or shares, and others in fixed income, debt and government bonds, while others are mixed, in the sense that they invest in both fixed income and equities. Others are money market funds, a very safe option featuring highly liquid, low-risk assets; global funds, which diversify the investment; or capital protected funds, which allow investors to recover at least the initial capital they invested.
There are also what are known as hedge funds, which are not subject to any restrictions, or funds of funds.
Taxation of investment funds
As a financial product, CISs come with certain tax advantages. As the capital we invest is tax-free, we will not have to pay tax on the profit it generates until we choose to exit the fund.
And if we transfer our investment to another fund, we will not have to pay any interest either. However, When we withdraw our money, the tax authorities will withhold tax on the part of the profit, though not on the total investment.