An investment fund is a type of collective investment between a large number of investors called unit holders. Individual investors use this formula to access multiple financial markets and instruments.

While each fund has its own strategy or policy, all funds diversify their investment in different assets to reduce the risk of investing all the capital in one place.

Investment funds dictionary

Access the glossary where you will find all the information you need about investment funds.
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Fund types

There are many types of funds, and none is better than another. The best fund is the one that suits your investor profile; in other words, the one that best fits your future liquidity needs and investment goals based on the risk assumed.

All investment funds have the following ratio: the lower the expected yield, the lower the risk, and the higher the expected yield, the higher the risk.

Investment funds are classified according to the type of asset in which they invest as well as the geographical area or management style applied.

Investment funds are classified according to the types of financial assets in which the manager invests the fund's assets. According to this criterion, the funds are divided into:

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Money market

These invest in money market assets like treasury bills and deposits to obtain yields in line with money market rates. The average duration of the assets invested is six months.

Short-term fixed income

These funds invest in fixed-income assets (government bonds, corporate debt, etc.) and have an average duration of less than three years. Their performance depends on fluctuations in interest rates and the debt issuer's credit risk.

Medium and long-term fixed income

These invest in fixed-income assets (government bonds, corporate debt, etc.) with an average duration of more than three years. Their performance depends on the interest rates in force at any given time and the credit risk of the debt issuer. Unlike short-term fixed-income funds, a longer duration means a greater potential return but a greater risk as well.

Equities

At least 75% of the investment is made in the equity market, i.e. shares or derivatives, which entails a high potential for return and thus greater risk.

Mixed fixed income

They invest less than 30% in equity assets, with the rest of the investment going to fixed-income assets. Potential return is thus higher than in a fixed income fund, and also it is less risky than investing all your assets in equity.

Mixed equity

These invest in equity assets in a percentage higher than 30% and lower than 75%, allocating the remaining assets to fixed income. In general, the higher the percentage invested in equities, the greater the risk and the potential return.

Totally or partially guaranteed

These guarantee the entire investment or a specific percentage. They include funds that guarantee a fixed return in addition to the capital and funds that earn interest linked to the performance of equities, foreign currencies or other assets.

Absolute return

These deliver a profit in any market scenario, regardless of the performance of the main money markets.

See FAQs FAQs

How do investment funds work?

What should I consider when choosing an investment fund?

The first thing I have to consider is my profile as an investor. In other words, the return that I want to get bearing in mind the risk that I am ready to accept, how long I wish to keep the investment to reach my goals, and also my possible liquidity needs. Once my investor profile is defined, it will be easy for me to choose the investment fund that suits me best.

Is it better to invest in one or more funds?

It is always advisable not to invest in just one type of asset. Diversifying investment means reducing risk. You can diversify and invest in different assets with different levels of return/risk. Under the same market conditions, different assets also tend to behave differently, i.e. the risk is also diversified.

I'm going to need the money in six months, should I invest in equities?

This type of fund is recommended for investors who are looking to enjoy long-term returns. In a short-term investment, the risk is greater. Equity funds invest in equities, i.e. they are high-risk funds because their return is linked to that of the markets. This means you may get a high return in the short term, but also that there are other periods in which the return is negative.

Who can own an investment fund?

Individuals and legal entities can be holders. Funds may also have a single owner or several owners (called "co-owners"). If there are several holders, the fund is owned by all of them in equal parts.

Do I have to open a foreign currency account to open a foreign currency fund?

It is not necessary, you can do it through your account in euros.

What is a guaranteed fund?

A guaranteed fund is a fund whose investment policy is aimed at obtaining a certain return on a specific date, guaranteeing the capital invested at that date. There are guaranteed fixed-income and equity funds.

Guaranteed fixed income funds include some which guarantee a return on the maturity date in addition to the capital invested.

What is the difference between a cumulative fund and a distributive fund?

Cumulative funds are the most common. The dividend is not paid into the current account associated with the fund, but is included in the net asset value of the fund. One of the advantages of investment funds, and one of the reasons they are so interesting from a fiscal and financial standpoint, is that they are not taxed until they are reimbursed.

Distributive funds pay the dividend into the account associated with the fund. The dividend can be annual, quarterly, etc., and is subject to the withholding tax applicable when the funds are credited to the account.

Return

How is the average return on a fund calculated? What about if there are several contributions to the same fund?

It's a simple formula: return = (current return - purchase value) / purchase value

If there are several contributions, we need to calculate the average return obtained through the different contributions to calculate the average return on your investment fund. We need to calculate it since the contributions or purchase of fund units are made using that day's price (net asset value).

Can a fixed income fund go down?

The return on fixed-income funds depends mainly on changes in interest rates and the maturity of the assets in the portfolio.

It varies inversely proportional to changes in interest rates: the fund's profitability increases when interest rates go down and decreases when they go up. This means that fixed-income funds can actually report losses.

Transfers

What is a transfer?

You can use a transfer to switch the investment from one fund to another without affecting the investor's personal income tax return. This tax regime applies both to Spanish funds and to those created in EU countries and registered with the CMNV, but only to individuals resident in Spain.

How is a transfer made between different entities?

You must ask to make the transfer to the entity that markets the fund in which you want to invest.

How long does it take to make a transfer?

It usually takes no longer than five days to transfer between funds of the same fund manager. It can take up to eight business days to transfer between funds of different managers.

Procedures to transfers between different entities are somewhat more complex, we would have to add several more days to the previous periods.

What does changing the commercialiser entail?

In this case, the original fund and the new fund are the same but the customer wants to deposit the funds in another commercialising entity. No cash is exchanged in this transaction, and the fund is usually switched in around 15-20 business days.

Net asset value

What is the price of an investment fund? How is it determined?

This is the price at which the units of an investment fund are bought and sold; it is referred to as the net asset value. This value is calculated daily by dividing the total assets of the fund by the number of total units.

What is the net asset value when I buy a fund?

The purchases and sales are made with the net asset value of the day on which the order is given; this net asset value is announced the following day. The net asset value is calculated at a certain time, which will differ depending on the fund. All orders given from that moment onwards are considered to have been placed on the next business day.

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