There are times when the arrival of extra money, the search for greater profitability or simply the desire to save for the future encourages you to look for investment formulas that offer you a higher return than that of a savings account, a fixed term or a pension plan.
Among the financial instruments that exist is the investment fund . It is a tool available to anyone who adjusts to the level of risk they want to assume and the needs they have, regardless of whether they are an investor with experience in the world of finance or a simple saver who wants to manage your money in a more efficient way.
How does an investment fund work?
The operation of an investment fund is relatively simple: it consists of making an individual contribution to your financial institution or to a specialized platform so that it can invest it in different financial assets and obtain a certain return. In return, a series of legally regulated commissions are charged.
Although its operation may be similar to that of the stock market, the investment fund has several peculiarities. When you choose the fund in which you want to invest, you buy shares at a price called the net asset value: its value is obtained by dividing the fund’s assets, that is, the money it has received from all the participants, by the number of shares in circulation. Unitholders can freely buy (subscribe) and sell (redeem) their shares, and help the fund’s assets go up or down. There is a certain level of risk in these operations, since if the assets in which the fund has invested give negative results, its assets will fall, as will the net asset value of its shares. And if at that moment of fall you need the money, it is possible that the net asset value of the refund is lower than that of the subscription and, ultimately, you lose money with the operation.
How can it benefit me?
One of the advantages of this formula is that financial institutions and companies that manage these shares can access markets that would not be within your reach if you decided to make these investments on your own. In this way, they offer you the possibility of diversifying your investments and looking for opportunities that allow you to get a better return on your savings.
In addition, investment funds have an advantageous taxation since you only have to pay for them at the time you sell your shares, and the capital gains generated in a transfer between funds, that is, between the reimbursement (sale of shares) and the subsequent subscription (purchase) of other shares, are not subject to the payment of taxes.
How can you invest in an investment fund?
To open an investment fund you only have to come to LABORAL Kutxa , although there are also other management companies. In them you will be able to receive all the information related to the conditions and the commissions that it carries.
What expenses do you have?
There are several types of commissions that you can pay when hiring an investment fund.
- Subscription commission. It is paid to the financial institution or management company for investing in the fund, and in no case may it exceed 5%. This is a typical commission from guaranteed funds.
- Refund commission. It is what you pay when you sell the investment you have in the fund; It has a maximum amount of 5% and is also common for guaranteed funds.
- Deposit commission. It is paid to the entity that acts as depositary of the fund, for the administration and custody of the securities. It cannot exceed 2 per 1,000 per annum of the patrimony.
Which to choose?
The choice of a fund is usually associated with the needs and objectives of the investor, but also with the level of risk that he wants to assume, and that risk depends on the type of asset in which it is invested, the geographical area (political instability, economic or social of a region or country) or the currency (the dollar and the euro are more stable) in which the investment is made. In general, the security of the asset is usually inversely proportional to its profitability and is identified on a scale from 1 (safest) to 6 or 7 (greater risk).
There are several types of funds depending on your needs and objectives:
- Fixed rent. These funds invest most of their assets in fixed income assets and their evolution depends on interest rates and the issuing entity meeting payment commitments. They are the safest, although they are not guaranteed either, but the ones that offer the lowest profitability, and a good way to get a certain return on your money outside of conventional formulas.
- Variable Income. Your investments are primarily stocks or other equity mutual funds, and that translates to both higher risk and higher potential returns. If you are not going to need the money for a long time and you like to explore daring and risky formulas, this is your option.
- Mixed Income. They distribute their assets in fixed income and variable income assets, and the level of risk and potential return varies depending on the proportion of one and the other. It is one of the most interesting options because it includes funds that adapt to the different risk and investment objectives that you want.
- Guaranteed. They ensure the capital invested at a certain date. They can be Fixed Income (which guarantee the capital and a fixed return at the conclusion date, and Variable Income (guarantee the capital but not the performance.) It is a good option if you do not like to risk.
- Global. They freely invest in Fixed Income and Variable Income and do not have a predefined currency or geographic area. It is your option if you are looking for a high level of risk.
In addition to these large categories, there are other types of funds that have investment policies adapted to the economic situation, objectives and level of risk of the investors.