An investment fund is a collective investment that brings together resources from different investors, called shareholders. The total amount invested by shareholders is invested in different types of assets to earn interest over time. These assets are chosen based on the fund’s profile – which can be conservative, moderate, or aggressive.
Who is responsible for allocating the money is the manager, who receives an administration fee for the work done? When a shareholder wants to redeem his investment, he receives an appreciation proportional to his shares in the period in which the money was invested.
However, there are dozens of categories and thousands of funds available on the market. Because of this, it can be difficult to choose and arrive at the ideal application for your risk profile and need. See below which criteria must be observed to choose the best investment fund.
1) Select The Appropriate Category
Analyzing your investor profile, do you consider yourself conservative, moderate, or bold? Your risk profile helps you define the type of fund and category that is right for you.
Although there are dozens of types, there are three broad categories of funds on the market: fixed income, equity funds, or variable income, and multimarket funds (which mix fixed income and variable income strategies).
2) Analyze The Strategy
Among fixed-income, multimarket, and equity funds, there are more and less conservative options that can be more or less profitable. Each fund’s type of strategy and classification is generally described in its name and explained in more detail in its prospectus, a document that presents the most relevant information about the investment for the investor.
There are several types of equity, multimarket, and fixed income fund categories. The fund category usually summarizes strategy. For example, funds that invest the majority of their portfolio in mid-and low-cap stocks on the stock market are classified as “Small Caps Stocks.” Others that focus on shares of companies in a certain segment, such as energy, can be classified as “Sectoral Shares,” and so on.
3) Check Historical Feedback And Management
We already know that past return is no guarantee of future profitability. Still, investors should always check the fund’s historical return, present in the fund’s announcement on the broker’s platform (if not found, just ask the financial institution). This is one of the most effective ways to check the consistency of the manager’s results.
The recommendation is to analyze the fund’s profitability at least over the past three years, if possible, over the past decade, and compare it to the benchmark index to see if it is delivering on its promises.
4) Beware Of High Fees
Each fund needs to remunerate its manager’s work by charging an administration fee. However, this amount, charged on the number of resources invested per year, varies between the types of funds and the financial institutions. However, among funds of the same category, it is necessary to verify whether the returns obtained over time are worth the cost. After all, higher fees must be paid to managers who do a good job, superior to competitors and the market average.
Depending on the fund’s strategy, there may still be a performance fee, generally equivalent to 20% of the fund’s benchmark. Some funds may also charge an exit fee if the investor wants to redeem the shares before the minimum investment period. This fee is often considered abusive and can weigh heavily on the investor’s pocket – it is possible to find several funds that do not charge it visit website for investment to learn more before going into iy.