Understanding Investment Funds


What are investment funds?


Building and maintaining a diversified portfolio of investments that minimise the risks to your money, requires a great deal of effort and investment knowledge. The majority of investors lack the time or experience to give a portfolio the attention it demands. For such investors, investment funds combined with the ‘know-how’ of a financial advisor can present a sound and individually tailored solution.

Stock market investing can be risky and we are constantly told not to put all our eggs in one basket. Investment funds offer the capability to achieve diversification across a range of investments by simply investing into one fund. Often referred to as a Collective Investment Scheme, these funds, under the supervision of fund managers, pool together money from many investors to collectively invest in a selection of stocks, bonds, properties and other financial instruments. Thus providing a diversified investment. Of course, a portfolio can then be diversified further still by being made up of many different and quite separate investment funds that focus on alternative areas and/or asset classes.

Each collective fund has an objective outlining what it claims to achieve for its investors. This allows investors to choose funds that are appropriate to their level of risk. The objective can be found on the fund ‘fact sheet’ or prospectus. It is the fund manager’s job to create a portfolio that blends different types of shares, bonds and other financial instruments to achieve the objectives of the fund.

As with all investments of this nature, the most important thing to remember is that investment funds should be viewed as a medium to long-term investment.