What is an investment fund?

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Investment funds started in Spain in the 80’s. There is a very varied typology, which allows the investor / saver to find the most suitable products for any investor profile, from the most conservative to the most risky. That is why the importance of the active role of professionals and the financial training of investors to be able to select the one that best suits their needs and expectations.

Let’s start with define what a fund is. According to the definition of the National Securities Market Commission, “investment funds are Collective Investment Institutions (IIC), and consist of assets formed by the contributions of a variable number of investors named participants ”. Each of these participants owns a part of the fund’s assets.

The background is created by a managing entity, which is in charge of investing jointly the contributions of its participants in different financial assets, be it fixed income, equities, currencies, commodities, derivatives and any combination of these. Previously, certain guidelines or investment policy have been established that can be found in prospectus or fund prospectus, which contains the number and date of registration of the fund with the CNMV, the name of the fund and ISIN code (which is an identification of the fund and we will see later), date of incorporation, name of the manager and the depositary, the auditor of the fund, depositary bank, category (if it is fixed income, variable, mixed, etc.), and other data as can be seen in the following case:

It is important to know the characteristics of the funds, such is the case of the time horizon (we always speak of the long term), the liquidity of the product and the risk of losses, among others. That is why it is important to read the documentation available for the funds, such as the DFI (fundamental data document for the investor) as well as their periodic reports or files, accessible on most of the management companies’ websites. .

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As we discussed earlier, the investment unit of the fund is via participations. Its price or market value is known as liquidation value (VL) and is calculated by dividing the total assets of the fund by the number of shares in circulation at any given time.

It should be remembered that, in exchange for professional fund management, the participant pays certain commissions that vary according to the funds and which are contained in the explanatory brochure. These management and depository commissions are charged to the fund directly, which is why it is subtracted from the fund’s assets to calculate the profitability obtained by the investor. There are also some funds that charge the participant a subscription and / or redemption commission, that is, when shares are bought or sold.

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