Investment Fund ABC

An investment fund is an entity that collects money from investors and invests it in securities on their behalf. It is managed by a fund manager according to the principle of risk-spreading.

Investors put money into a fund by buying fund units (sometimes called shares) that give them co-ownership of the fund. Each unit represents a small part of the fund’s investment portfolio. Thus, if 5% of a fund’s assets are invested in shares of Company ABC, then the owner of 100 euros worth of units of the fund indirectly owns 5 euros worth of Company ABC shares.

The world of investment funds offers many different investment possibilities. Funds can be categorized based on what classes of assets they invest in (stocks, bonds, etc.) and their style of investing. The fact that there are different types of funds allows investors to choose those with a suitable risk level and investment horizon.

An investment fund’s net asset value (NAV) is the value of its assets (stocks, bonds, deposits, etc.) minus its liabilities. Funds calculate their net asset value on a regular basis, typically once each business day. Dividing a fund’s net asset value by the number of units (shares) it has issued gives us the net asset value per unit (or share), which is how funds usually report their NAV.

The law gives investment fund owners a number of protective rights. Most basic is the right to sell units (shares) of a fund back to the fund manager. Open-end funds allow such transactions on any banking day, but there are also funds whose units you can only sell once a month or once a quarter.

Note that transactions costs apply when buying or selling investment fund units even if the fund is not successful.

Some of the risks associated with investing in an investment fund:

– Expenses do not depend on the rate of return.

– Investors do not have control over the investments a fund makes.

– Investors cannot control the market value of a fund’s assets.

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