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An investment fund is a way of
investing Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is to generate a Return ( ...

investing
money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages include an ability to: * hire professional investment managers, who may offer better returns and more adequate risk management; * benefit from
economies of scale 330px, As quantity of production increases from Q to Q2, the average cost of each unit decreases from C to C1. LRAC is the long-run average cost In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their sca ...

economies of scale
, i.e., lower transaction costs; * increase the asset diversification to reduce some unsystematic risk. It remains unclear whether professional active investment managers can reliably enhance risk adjusted returns by an amount that exceeds fees and expenses of investment management. Terminology varies with country but investment funds are often referred to as investment pools, collective investment vehicles, collective investment schemes, managed funds, or simply funds. The regulatory term is undertaking for collective investment in transferable securities, or short collective investment undertaking (cf.
Law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its boundari ...
). An investment fund may be held by the public, such as a
mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ri ...
,
exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout the da ...
,
special-purpose acquisition company A special purpose acquisition company (SPAC; ), also known as a "blank check company" is a shell corporation listed on a stock exchange with the purpose of acquiring a private company A privately held company, private company, or close corporati ...
or
closed-end fund A closed-end fund (CEF) or closed-ended fund is a collective investment model based on issuing a fixed number of shares which are not redeemable from the fund. Unlike open-end fund Open-end fund (or open-ended fund) is a collective investment ...
, or it may be sold only in a
private placement Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering A public offering is the offering of securities of a company or a similar corporation to the public. Generally, the securitie ...
, such as a
hedge fund A hedge fund is a pooled investment fund Image:Financial info.jpg, The values and performance of collective funds are listed in newspapers. An investment fund is a way of investment, investing money alongside other investors in order to benefit ...
or
private equity fund A private-equity fund is a collective investment scheme used for making investments in various equity (and to a lesser extent debt) securities according to one of the investment strategies associated with private equity. Private equity funds are t ...
. The term also includes specialized vehicles such as collective and common trust funds, which are unique bank-managed funds structured primarily to commingle assets from qualifying pension plans or trusts. Investment funds are promoted with a wide range of investment aims either targeting specific geographic regions (''e.g.,'' emerging markets or Europe) or specified industry sectors (''e.g.,'' technology). Depending on the country there is normally a bias towards the domestic market due to familiarity, and the lack of currency risk. Funds are often selected on the basis of these specified investment aims, their past investment performance, and other factors such as fees.


History

The first (recorded) professionally managed investment funds or collective investment schemes, such as
mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ri ...
s, were established in the
Dutch Republic The United Provinces of the Netherlands, or United Provinces (officially the Republic of the Seven United Netherlands), commonly referred to in historiography Historiography is the study of the methods of historian ( 484– 425 BC) was ...
. Amsterdam-based businessman Abraham van Ketwich (also known as Adriaan van Ketwich) is often credited as the originator of the world's first mutual fund.


Law

The term "collective investment scheme" is a legal concept deriving initially from a set of
European Union Directive A directive is a legal act of the European Union that requires Member state of the European Union, member states to achieve a particular result without dictating the means of achieving that result. Directives first have to be enacted into nation ...
s to regulate mutual fund investment and management. The
Undertakings for Collective Investment in Transferable Securities Directives The Undertakings for Collective Investment in Transferable Securities Directive''2009/65/ECis a consolidated EU directive A directive is a legal act of the European Union The European Union (EU) is a political and economic union of Memb ...
br>85/611/EEC
as amended b
2001/107/EC
an
2001/108/EC
(typically known as UCITS for short) created an EU-wide structure, so that funds fulfilling its basic regulations could be marketed in any member state. The basic aim of collective investment scheme regulation is that the financial "products" that are sold to the public are sufficiently transparent, with full disclosure about the nature of the terms. In the United Kingdom, the primary statute is the
Financial Services and Markets Act 2000 The Financial Services and Markets Act 2000c 8 is an Act of the Parliament of the United Kingdom The Parliament of the United Kingdom is the Parliamentary sovereignty in the United Kingdom, supreme Legislature, legislative body of the Unit ...
, where Part XVII, sections 235 to 284 deal with the requirements for a collective investment scheme to operate. It states in section 235 that a "collective investment scheme" means "any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income".


Generic information—structure


Constitution and terminology

Collective investment vehicles may be formed under
company law Corporate law (also known as business law or enterprise law or sometimes company law) is the body of law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules t ...
, by legal trust or by
statute A statute is a formal written enactment of a legislative A legislature is an assembly Assembly may refer to: Organisations and meetings * Deliberative assembly A deliberative assembly is a gathering of members (of any kind of collective) ...

statute
. The nature of the vehicle and its limitations are often linked to its constitutional nature and the associated tax rules for the type of structure within a given jurisdiction. Typically there is: * A fund manager or
investment manager Investment management is the professional asset management of various securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument Finance is the study of financial institutions, fina ...
who manages the investment decisions. * A fund administrator who manages the trading, reconciliations, valuation and unit pricing. * A board of directors or trustees who safeguard the assets and ensure compliance with laws, regulations and rules. * The shareholders or unitholders who own (or have rights to) the assets and associated income. * A "marketing" or "distribution" company to promote and sell shares/units of the fund. Please see below for general information on specific forms of vehicles in different jurisdictions.


Net asset value

The
net asset value Net asset value (NAV) is the value of an entity's asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial i ...
(NAV) is the value of a vehicle's assets minus the value of its liabilities. The method for calculating this varies between vehicle types and jurisdiction and can be subject to complex regulation.


Open-end fund

An open-end fund is equitably divided into shares which vary in price in direct proportion to the variation in value of the fund's
net asset value Net asset value (NAV) is the value of an entity's asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial i ...
. Each time money is invested, new shares or units are created to match the prevailing share price; each time shares are redeemed, the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets.


Closed-end fund

A
closed-end fund A closed-end fund (CEF) or closed-ended fund is a collective investment model based on issuing a fixed number of shares which are not redeemable from the fund. Unlike open-end fund Open-end fund (or open-ended fund) is a collective investment ...
issues a limited number of shares (or units) in an
initial public offering An initial public offering (IPO) or stock launch is a public offering A public offering is the offering of securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal defi ...
(or
IPO An initial public offering (IPO) or stock launch is a public offering A public offering is the offering of securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument Finance is the ...
) or through private placement. If shares are issued through an IPO, they are then traded on a
stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green To ...
. or directly through the fund manager to create a
secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial market A financial market is a market (economics), market in which people trade financial Security (finance), securities and derivative (finan ...
subject to
market forces A market is a composition of systems, institutions, procedures, social relations or infrastructures whereby parties engage in Exchange (economics), exchange. While parties may exchange goods and services by barter, most markets rely on sellers of ...
. The price that investors receive for their shares may be significantly different from
net asset value Net asset value (NAV) is the value of an entity's asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial i ...
(NAV); it may be at a "premium" to NAV (i.e., higher than NAV) or, more commonly, at a "discount" to NAV (i.e., lower than NAV). In the United States, at the end of 2018, there were 506 closed-end mutual funds with combined assets of $0.25 trillion, accounting for 1% of the U.S. industry.


Exchange-traded funds

Exchange-traded funds (ETFs) combine characteristics of both closed-end funds and open-end funds. They are structured as open-end investment companies or UITs. ETFs are traded throughout the day on a stock exchange. An
arbitrage In economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behav ...
mechanism is used to keep the trading price close to
net asset value Net asset value (NAV) is the value of an entity's asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial i ...
of the ETF holdings. In the United States, at the end of 2018, there were 1,988 ETFs in the United States with combined assets of $3.3 trillion, accounting for 16% of the U.S. industry.


Unit investment trusts

Unit investment trusts (UITs) are issued to the public only once when they are created. UITs generally have a limited life span, established at creation. Investors can redeem shares directly with the fund at any time (similar to an open-end fund) or wait to redeem them upon the trust's termination. Less commonly, they can sell their shares in the open market. Unlike other types of mutual funds, unit investment trusts do not have a professional investment manager. Their portfolio of securities is established at the creation of the UIT. In the United States, at the end of 2018, there were 4,917 UITs with combined assets of less than $0.1 trillion.


Gearing and leverage

Some collective investment vehicles have the power to borrow money to make further investments; a process known as gearing or leverage. If markets are growing rapidly this can allow the vehicle to take advantage of the growth to a greater extent than if only the subscribed contributions were invested. However this premise only works if the cost of the borrowing is less than the increased growth achieved. If the borrowing costs are more than the growth achieved a net loss is achieved. This can greatly increase the investment risk of the fund by increased volatility and exposure to increased capital risk. Gearing was a major contributory factor in the collapse of the
split capital investment trustA split capital investment trust (split) is a type of investment trust which issues different classes of share to give the investor a choice of shares to match their needs. Most splits have a limited life determined at launch known as the wind-up d ...
debacle in the in 2002.


Availability and access

Collective investment vehicles vary in availability depending on their intended investor base: *Public-availability vehicles—are available to most investors within the jurisdiction they are offered. Some restrictions on age and size of investment may be imposed. *Limited-availability vehicles—are limited by laws, regulations, and/or rules to experienced and/or sophisticated investors and often have high minimum investment requirements. *Private-availability vehicles—may be limited to family members or whomever set up the fund. They are not publicly traded and may be arranged for tax- or estate-planning purposes.


Limited duration

Some vehicles are designed to have a limited term with enforced redemption of shares or units on a specified date.


Unit or share class

Many collective investment vehicles split the fund into multiple classes of shares or units. The underlying assets of each class are effectively pooled for the purposes of investment management, but classes typically differ in the fees and expenses paid out of the fund's assets. These differences are supposed to reflect different costs involved in servicing investors in various classes; for example: * One class may be sold through a stockbroker or
financial adviser A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory b ...
with an initial commission (front-end load); such a class might be called ''retail'' shares. * Another class may be sold with no commission (load) direct to the public; such a class is called ''direct'' shares. * Still a third class might have a high minimum investment limit and only be open to financial institutions; such a class is called ''institutional'' shares. In some cases, by aggregating regular investments by many individuals, a retirement plan (such as a 401(k) plan) may qualify to purchase "institutional" shares (and gain the benefit of their typically lower expense ratios) even though no members of the plan would qualify individually. Some of the fund classes: * Class A * Class B * Class C * Class D * Class E * Class W * Class Z


Generic information—advantages


Diversity and risk

One of the main advantages of collective investment is the reduction in investment risk ( capital risk) by
diversification Diversification may refer to: Biology and agriculture * Genetic divergence, emergence of subpopulations that have accumulated independent genetic changes * Agricultural diversification involves the re-allocation of some of a farm's resources to ne ...
. An investment in a single equity may do well, but it may collapse for investment or other reasons (e.g., Marconi). If your money is invested in such a failed holding you could lose your capital. By investing in a range of equities (or other securities) the capital risk is reduced. *''The more diversified your capital, the lower the capital risk''. This investment principle is often referred to as spreading risk. Collective investments by their nature tend to invest in a range of individual securities. However, if the securities are all in a similar type of
asset class In finance, an asset class is a group of financial instrument Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money I ...
or
market sector The term market sector is used in economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (eco ...
then there is a systematic risk that all the shares could be affected by adverse market changes. To avoid this systematic risk investment managers may diversify into different non-perfectly-correlated asset classes. For example, investors might hold their assets in equal parts in
equities In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...
and
fixed income Fixed income refers to any type of investment Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance ...
securities.


Reduced dealing costs

If one investor had to buy a large number of direct investments, the amount this person would be able to invest in each holding is likely to be small. Dealing costs are normally based on the number and size of each transaction, therefore the overall dealing costs would take a large chunk out of the capital (affecting future profits).


Reduction or elimination of requirement to spend personal time investing

An investor that chooses to use an investment fund as a way to invest his or her money does not need to spend as much personal time making investment decisions, doing investment research, or performing actual trades. Instead, these actions and decisions will be done by one or more fund managers managing the investment fund.


Generic information—disadvantages


Costs

The fund manager managing the investment decisions on behalf of the investors will of course expect remuneration. This is often taken directly from the fund assets as a fixed percentage each year or sometimes a variable (performance based) fee. If the investor managed their own investments, this cost would be avoided. Often the cost of advice given by a stockbroker or
financial adviser A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory b ...
is built into the vehicle. Often referred to as
commission Commission or commissioning may refer to: Business and contracting * Commission (remuneration), a form of payment to an agent for services rendered ** Commission (art), the purchase or the creation of a piece of art most often on behalf of another ...
or
load Load or LOAD may refer to: Aeronautics and transportation *Load factor (aeronautics), the ratio of the lift of an aircraft to its weight *Passenger load factor, the ratio of revenue passenger miles to available seat miles of a particular transpor ...
(in the
U.S. The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country primarily located in North America North America is a continent entirely within the Northern Hemisphere and almost all ...

U.S.
) this charge may be applied at the start of the plan or as an ongoing percentage of the fund value each year. While this cost will diminish your returns it could be argued that it reflects a separate payment for an advice service rather than a detrimental feature of collective investment vehicles. Indeed, it is often possible to purchase units or shares directly from the providers without bearing this cost.


Lack of choice

Although the investor can choose the type of fund to invest in, they have no control over the choice of individual holdings that make up the fund.


Loss of owner's rights

If the investor holds shares directly, he has the right to attend the company's annual general meeting and vote on important matters. Investors in a collective investment vehicle often have none of the rights connected with individual investments within the fund.


Style


Investment aims and benchmarking

Each fund has a defined investment goal to describe the remit of the investment manager and to help investors decide if the fund is right for them. The investment aims will typically fall into the broad categories of Income (value) investment or Growth investment. Income or value based investment tends to select stocks with strong income streams, often more established businesses. Growth investment selects stocks that tend to reinvest their income to generate growth. Each strategy has its critics and proponents; some prefer a ''blend'' approach using aspects of each. Funds are often distinguished by asset-based categories such as ''equity'', ''bonds'', ''property'', etc. Also, perhaps most commonly funds are divided by their ''geographic markets'' or ''themes''. Examples *The largest markets—
U.S. The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country primarily located in North America North America is a continent entirely within the Northern Hemisphere and almost all ...

U.S.
,
Japan Japan ( ja, 日本, or , and formally ) is an island country An island country or an island nation is a country A country is a distinct territory, territorial body or political entity. It is often referred to as the land of an in ...

Japan
,
Europe Europe is a continent A continent is any of several large landmass A landmass, or land mass, is a large region In geography Geography (from Greek: , ''geographia'', literally "earth description") is a field of scienc ...

Europe
, and
Far East The Far East is a term to refer to the geographical regions that includes East and Southeast Asia Southeast Asia, also spelled South East Asia and South-East Asia, and also known as Southeastern Asia or SEA, is the geographical United Nati ...

Far East
are often divided into smaller funds e.g. US large caps, Japanese smaller companies, European Growth, UK mid caps etc. *Themed funds—Technology, Healthcare, Socially responsible funds. In most instances whatever the investment aim the fund manager will select an appropriate index or combination of indices to measure its performance against; e.g.
FTSE 100 The Financial Times Stock Exchange 100 Index, also called the FTSE 100 Index, FTSE 100, FTSE, or, informally, the "Footsie" , is a share index Image:Comparison of three stock indices after 1975.svg, 300px, A comparison of three major U.S. stock ...
. This becomes the benchmark to measure success or failure against.


Active or passive management

The aim of most funds is to make money by investing in assets to obtain a real return (i.e. better than inflation). The philosophy used to manage the fund's investment vary and two opposing views exist.
Active management Active management (also called ''active investing'') refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index or target return. In passive management, inve ...
—Active managers seek to outperform the
market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Sweden Art, entertainment, and media Films *Market (1965 film), ''Market'' (1965 ...
as a whole, by selectively holding securities according to an
investment strategy In finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in th ...
. Therefore, they employ dynamic portfolio strategies, buying and selling investments with changing market conditions, based on their belief that particular individual holdings or sections of the market will perform better than others.
Passive management Passive management (also called passive investing) is an investing strategy that tracks a market-weighted index or portfolio. Passive management is most common on the equity market, where index funds track a stock market index 300px, A comparison ...
—Passive managers stick to a portfolio strategy determined at outset of the fund and not varied thereafter, aiming to minimize the ongoing costs of maintaining the portfolio. Many passive funds are
index fund An index fund (also index tracker) is a mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages ...
s, which attempt to replicate the performance of a market index by holding securities proportionally to their value in the market as a whole. Another example of passive management is the "
buy and hold Buy and hold, also called position trading, is an investment strategyIn finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management ...
" method used by many traditional
unit investment trust In U.S. financial law, a unit investment trust (UIT) is an exchange-traded mutual fund offering a fixed (unmanaged) portfolio Portfolio may refer to: Objects * Portfolio (briefcase), a type of briefcase Collections * Portfolio (finance), ...
s where the portfolio is fixed from outset. Additionally, some funds use a hybrid management strategy of enhanced indexing, in which the manager minimizes costs by broadly following a passive indexing strategy, but has the discretion to actively deviate from the index in the hopes of earning modestly higher returns. An example of active management success *In 1998
Richard Branson Sir Richard Charles Nicholas Branson (born 18 July 1950) is a British business magnate, entrepreneur, investor, and author. In the 1970s he founded the Virgin Group, which today controls more than 400 companies in various fields. Branson expre ...

Richard Branson
(head of
Virgin Virginity is the state of a person who has never engaged in sexual intercourse. The term ''virgin'' originally only referred to sexually inexperienced women, but has evolved to encompass a range of definitions, as found in traditional, modern a ...
) publicly bet
Nicola Horlick use both this parameter and , birth_date to display the person's date of birth, date of death, and age at death) --> , death_place = , death_cause = , resting_place = , resting_place_coordinates = , burial_place ...
(head of SG Asset Management) that her SG UK Growth fund would not beat the
FTSE 100 The Financial Times Stock Exchange 100 Index, also called the FTSE 100 Index, FTSE 100, FTSE, or, informally, the "Footsie" , is a share index Image:Comparison of three stock indices after 1975.svg, 300px, A comparison of three major U.S. stock ...
index, nor his Virgin Index Tracker fund over three years, nor achieve its stated aim to beat the index by 2% each year. He lost and paid £6,000 to charity.


Alpha, Beta, R-squared and standard deviation

When analysing investment performance, statistical measures are often used to compare 'funds'. These statistical measures are often reduced to a single figure representing an aspect of past performance: *
Alpha Alpha (uppercase , lowercase ; grc, ἄλφα, ''álpha'', modern pronunciation ''álfa'') is the first letter Letter, letters, or literature may refer to: Characters typeface * Letter (alphabet) A letter is a segmental symbol A s ...
represents the fund's return when the
benchmark Benchmark may refer to: Measurements and other evaluations *Benchmarking, evaluating performance within organizations *Reference points for geographic measurements: **Benchmark (surveying), a point of known elevation marked for the purpose of su ...

benchmark
's return is 0. This shows the fund's performance relative to the benchmark and can demonstrate the value added by the fund manager. The higher the 'alpha' the better the manager. Alpha investment strategies tend to favour ''stock selection'' methods to achieve growth. *
Beta Beta (, ; uppercase , lowercase , or cursive Cursive (also known as script, among other names) is any style of penmanship Penmanship is the technique of writing Writing is a medium of human communication that involves the represen ...
represents an estimate of how much the fund will move if its benchmark moves by 1 unit. This shows the fund's sensitivity to changes in the market. Beta investment strategies tend to favour asset allocation models to achieve ''outperformance''. * R-squared is a measure of the association between a fund and its benchmark. Values are between 0 and 1. Perfect correlation is indicated by 1, and 0 indicates no correlation. This measure is useful in determining if the fund manager is adding value in their investment choices or acting as a ''closet tracker'' mirroring the market and making little difference. For example, an index fund will have an R-squared with its benchmark index very close to 1, indicating close to perfect correlation (the index fund's fees and tracking error prevent the correlation from ever equalling 1). *
Standard deviation In statistics, the standard deviation is a measure of the amount of variation or statistical dispersion, dispersion of a set of values. A low standard deviation indicates that the values tend to be close to the mean (also called the expected v ...

Standard deviation
is a measure of volatility of the fund's performance over a period of time. The higher the figure the greater the variability of the fund's performance. High historical volatility may indicate high future volatility, and therefore increased investment risk in a fund.


Types of risk

Depending on the nature of the investment, the type of 'investment' risk will vary. A common concern with any investment is that you may lose the money you invest—your capital. This risk is therefore often referred to as capital risk. If the assets you invest in are held in another currency there is a risk that currency movements alone may affect the value. This is referred to as currency risk. Many forms of investment may not be readily salable on the open market (e.g. commercial property) or the market has a small capacity and investments may take time to sell. Assets that are easily sold are termed ''liquid'' therefore this type of risk is termed
liquidity risk Liquidity risk is a financial risk Financial risk is any of various types of risk In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty Uncertainty refers to Epistemology, epistemic situations invol ...
.


Charging structures and fees


Fee types

For an open-end fund, there may be an initial charge levied on the purchase of units or shares this covers dealing costs, and commissions paid to intermediaries or salespeople. Typically this fee is a percentage of the investment. Some vehicles waive the initial charge and apply an exit charge instead. This may be gradually disappearing after a number of years. Closed-end funds traded on an exchange are subject to brokerage commissions, in the same manner as a
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
trade. The vehicle will charge an annual management charge (AMC) to cover the cost of administering the vehicle and remunerating the investment manager. This may be a flat rate based on the value of the assets or a performance related fee based on a predefined target being achieved. Different unit/share classes may have different combinations of fees/charges.


Pricing models

Open-ended vehicles are either ''dual priced'' or ''single priced''. Dual priced vehicles have a buying (offer) price and selling or (bid) price. The buying price is higher than the selling price, this difference is known as the ''spread'' or '' bid–offer spread''. The difference is typically 5% and may be varied by the vehicle's manager to reflect changes in the market; the amount of variation may be limited by the vehicles rules or regulatory rules. The difference between the buying and selling price includes initial charge for entering the fund. The internal workings of a fund are more complicated than this description suggests. The manager sets a price for creation of units/shares and for cancellation. There is a differential between the cancellation and bid prices, and the creation and offer prices. The additional units are created are place in the ''managers box'' for future purchasers. When heavy selling occurs units are liquidated from the ''managers box'' to protect the existing investors from the increased dealing costs. Adjusting the bid/offer prices closer to the cancellation/creation prices allows the manager to protect the interest of the existing investors in changing market conditions. Most unit trusts are dual priced. Single priced vehicles notionally have a single price for units/shares and this price is the same if buying or selling. As single prices vehicle cannot adjust the difference between the buying and selling price to adjust for market conditions, another mechanism, the ''dilution levy'' exists. SICAVs, OEICs and U.S. mutual funds are single priced. A dilution levy can be charged at the discretion of the fund manager, to offset the cost of market transactions resulting from large un-matched buy or sell orders. For example, if the volume of purchases outweigh the volume of sales in a particular trading period the fund manager will have to go to the market to buy more of the assets underlying the fund, incurring a brokerage fee in the process and having an adverse effect on the fund as a whole ("diluting" the fund). The same is the case with large sell orders. A dilution levy is therefore applied where appropriate and paid for by the investor in order that large single transactions do not reduce the value of the fund as a whole.


Internationally recognised collective investments

*
Exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ...
s (ETFs)—an open-end fund traded by listed shares on major stock exchanges. * Real Estate Investment Trusts (REITs)—a close-ended fund that invests in real estate. * Sovereign investment funds


United States market

Investment funds are regulated by the
Investment Company Act of 1940 The Investment Company Act of 1940 (commonly referred to as the '40 Act) is an act of Congress An Act of Congress is a statute enacted by United States Congress, Congress. Acts can affect only individual entities (called private laws), or the gen ...
, which broadly describes three major types: open-end funds, closed-end funds, and unit investment trusts. Open-end funds called
mutual funds A mutual fund is a professionally managed investment fund Image:Financial info.jpg, The values and performance of collective funds are listed in newspapers. An investment fund is a way of investment, investing money alongside other investors in or ...
and ETFs are common. As of 2019, the top 5 asset managers accounted for 55% of the 19.3 trillion in mutual fund and ETF investments. However, for
active management Active management (also called ''active investing'') refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index or target return. In passive management, inve ...
, the top 5 account for 22% of the market, with the top 10 accounting for 30% and the top 25 accounting for 39%.
BlackRock BlackRock, Inc. is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational stat ...
and
Vanguard The vanguard (also called the advance guard) is the leading part of an advancing military formation Military organization or military organisation is the structuring of the armed forces of a State (polity), state so as to offer such military c ...
are the top two when including passive investments. The top 5 active management funds in 2018 were
Capital Group Companies Capital Group is an American financial services company. It ranks among the world's oldest and largest investment management Investment management is the professional asset management of various securities, including shareholdings, bonds, and o ...
(using American Funds brand),
Fidelity Investments Fidelity Investments Inc., commonly referred to as Fidelity, earlier as Fidelity Management & Research or FMR, is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple ...
,
Vanguard The vanguard (also called the advance guard) is the leading part of an advancing military formation Military organization or military organisation is the structuring of the armed forces of a State (polity), state so as to offer such military c ...
,
T. Rowe Price T. Rowe Price Group, Inc. is an American publicly owned global investment management Investment management is the professional asset management of various securities, including shareholdings, bonds, and other asset In financial accountancy ...
, and
Dimensional Fund Advisors Dimensional Fund Advisors, L.P. (branded Dimensional abbreviated DFA) is a private investment firm headquartered in Austin, Texas Austin (, ) is the capital city A capital or capital city is the municipality holding primary status in ...
; in 2008, the list included
PIMCO PIMCO (Pacific Investment Management Company, LLC) is an American investment management Investment management is the professional asset management Asset management refers to a systematic approach to the governance and realization of value f ...
and
Franklin Templeton Franklin Resources Inc. is an American multinational holding company that, together with its subsidiaries, is referred to as Franklin Templeton; it is a global investment To invest is to allocate money Image:National-Debt-Gillray.jpeg, In ...
. Closed-end funds are less common, with around 277 billion in assets under management as of 2019, including about $107 billion in equities and $170 billion in bonds; market leaders include
Nuveen Nuveen is an American asset manager and wholly owned subsidiary of financial planning firm TIAA The Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA, formerly TIAA-CREF), is a Fortune 100 The ''For ...

Nuveen
and BlackRock. Unit investment trusts are the least common, with about $6.5 billion in assets as of 2019.


UK-specific collective investments

*
Exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ...
s (ETFs)—Open-ended with a corporate structure. *
Investment Trust An investment trust is a form of investment fund An investment fund is a way of investing Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, ...
s—Introduced 1868. Closed-ended with corporate structure. * Tax transparent funds—Introduced 2013. * Open-ended investment companies (OEICs or ICVCs)—Introduced 1997. Open-ended with a corporate structure. * Unit Trusts—Introduced 1931. Open-ended with a trust structure. * Unitised Insurance Funds—Introduced 1970s. Open-ended with a life policy structure. *
With-profits policy A with-profits policy (Commonwealth of Nations, Commonwealth) or participating policy (United States, U.S.) is an insurance contract that participates in the Profit (accounting), profits of a life insurance company. The company is often a Mutual i ...
—Open-ended with a life policy structure. * Non mainstream pooled investment funds - introduced in 2014. Closed-ended or open-ended.


Canadian collective investments

*
Income Trust An income trust is an investment that may hold equities, debt instruments, royalty interests or real properties. They are especially useful for financial requirements of institutional investor An institutional investor is an entity which pools ...
s * Labour Sponsored Funds *
Mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ri ...
s


Ireland specific collective investments

* Common contractual fund ("CCF") * Irish Collective Asset-Management Vehicle (commonly referred to as an " ICAV")See Irish Collective Asset-management Vehicles Act 201
(Original Act available here)
/ref> *
Qualifying investor alternative investment fund (QIAIF) Qualifying Investor Alternative Investment Fund or QIAIF is a Central Bank of Ireland regulatory classification established in 2013 for Ireland's five tax-free legal structures for holding assets. The Irish Collective Asset-management Vehicle ...
* Retail Investor Alternative Investment Fund * Loan Originating Alternative Investment Fund (L-QIAIF)


European collective investments

*
SICAV A SICAV is a collective investment scheme common in Western Europe, especially Luxembourg, Switzerland, Italy, Spain, Belgium, Malta, France, and the Czech Republic. SICAV is an acronym in French language, French for ''société d'investissement à ...
s *
UCITS The Undertakings for Collective Investment in Transferable Securities Directive''2009/65/ECis a consolidated EU directive A directive is a legal act of the European Union The European Union (EU) is a political and economic union of Me ...


France and Luxembourg

*FCP ( Fonds commun de placement) (unincorporated investment fund or common fund) *SICAF (Société d'investissement à capital fixe) (Investment company with fixed capital) *
SICAV A SICAV is a collective investment scheme common in Western Europe, especially Luxembourg, Switzerland, Italy, Spain, Belgium, Malta, France, and the Czech Republic. SICAV is an acronym in French language, French for ''société d'investissement à ...
(Société d'investissement à capital variable) (Investment company with variable capital)


Netherlands and Belgium

*BEVAK (Investment company with fixed capital) *BEVEK (Investment Company with variable capital) *PRIVAK (Closed-end investment company)


Ukraine

*Instytut spilnogo investuvannya, ISI (Investment Funds) *Private investment fund (Payovyi investytsiyny fond) *Public investment fund (Korporatyvny investytsiyny fund) Both funds are run by Investment Company (KUA - kompania z upravlinnya actyvami). Funds and companies regulated and supervised by DKTsPFR (Securities and stock market state commission)


Greece

We could say that a mutual fund is a pool of money which belongs to many investors. Otherwise a M/F is the common cashier of many investors who trust a third party to operate and manage their wealth. Moreover, they order this third party which in Greece is called A.E.D.A.K. (Mutual Fund Management Company S.A.) to spread their money in many different investment products such as shares, bonds, deposits, repo etc. Those companies in Greece may provide services according to article 4 of Law 3283/2004. People who own units (shares) of a mutual fund are called unitholders. In Greece co-unitholders, which are persons participating in the same units of M/F have exactly the same rights as the unitholder (according to the Law for the deposits in common account 5638/1932). The unitholders have to sign and accept the document which describes the purpose of the Mutual Fund, how it operates, and anything concerning the Fund. This document is the regulation of the M/F. The property of each M/F by law have to be under the control of a bank legally operating in Greece (Greek or foreign). The bank is the custodian of the M/F and except of the custody of the fund also controls the lawfulness of all movements of the management company. The Supervisory and Regulatory Body of M.F. Management Companies and Portfolio Investment Companies is the Greek Capital Market Commission. It comes under the jurisdiction of the Ministry of National Economy and controls the operation of all M/Fs available in Greece. All investors have to be very careful and about the risk they undertake. They have to have in mind that all investments have a certain degree of risk. Risk–free investments does not exist.


Switzerland

* open-ended ** Anlagefonds (unincorporated investment fund or common fund) **
SICAV A SICAV is a collective investment scheme common in Western Europe, especially Luxembourg, Switzerland, Italy, Spain, Belgium, Malta, France, and the Czech Republic. SICAV is an acronym in French language, French for ''société d'investissement à ...
(Société d'investissement à capital variable) (Investment company with variable capital) * closed-ended ** Kommanditgesellschaft für Kapitalanlagen (
Limited Partnership A limited partnership (LP) is a form of partnership A partnership is an arrangement where parties, known as business partner A business partner is a commercial entity with which another commercial entity has some form of Business alliance, a ...
) ** Société d'investissement à capital fixe, SICAF (Société d'investissement à capital fixe) (Investment company with fixed capital)


Australian collective investments

* Listed investment company or LIC. Closed-ended collective investment either corporate or trust based. Available since 1928. *Managed Investment Vehicle per s 9 of the Corporations Act (Cth) 2001. *
Unit trust A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending ...
s open-ended trust based investments often called ''Managed funds'', ''managed investment vehicles''. or ''unlisted managed funds''. If the managed investment vehicle is open for retail investors, the managed investment vehicle must be registered with ASIC. An unregistered vehicle has a
Trustee Trustee (or the holding of a trusteeship) is a legal term {{Short pages monitor