In an investment fund, your money is invested together with the money of many other participants in that fund. You therefore buy a piece of the investment fund. We call this part a participation. An investment fund is set up by a fund house. For management purposes, the fund house appoints a fund manager, also known as an asset manager.
The fund manager invests the money of all participants together in many different shares (an equity fund), bonds (a bond fund) or in real estate (a real estate fund). Or in a combination of these investment categories (a mixed fund). Investing in an investment fund therefore offers an easy way to spread your investment portfolio. You can increase that spread yourself by investing in a number of investment funds, each focusing on a different area, such as in different regions or different business sectors.
Investment funds come in many shapes and sizes. There are a few things you should know before investing in an investment fund:
The Key Investor Information Document, or KIID for short, is a standard document that contains the most important information about an investment fund, such as the purpose, features, risks and costs of the fund. Most European investment funds are supervised by the regulatory bodies of the European financial markets. They are required to have a KIID. With the KIID you can better estimate the risks of an investment fund and compare funds from different providers more easily. It will help you decide whether you want to invest in this investment fund. Read this document before you invest in the investment fund for the first time.
Each KIID has a risk bar. This immediately shows you how high the risk of the investment fund is on a scale from 1 to 7, where 1 is the lowest risk and 7 the highest risk. That calculation of the risk is mainly based on the volatility of the investments within the fund. The faster the prices of these investments rise or fall, the higher the score on the risk bar.
You can find and compare funds, and all documents, with the fundseeker.
Investment funds are required to have a prospectus. With an approved prospectus, investment funds can be admitted to a financial market, such as a stock exchange. The Key Investor Information Document provides the main information about the investment fund on which you can base your investment decision. More detailed information about the investment fund can be found in the prospectus.
The costs of an investment fund affect its return. It is therefore important that you know what costs the fund charges. You can find this in the KIID. Each fund charges costs for the management of the fund, such as management costs, administration costs and transaction costs:
All costs (ongoing costs and transaction costs) are included in the price of the investment fund and are determined by the investment fund. In addition, you may have to pay transaction costs to your bank or broker when you buy or sell an investment fund.
Most investment funds can be traded easily. What you have to take into account is that almost all investment funds only get one price once a day. How does this work? The fund manager collects all the buy and sell orders of one day and settles them against each other. Based on this, he determines one price. He does this at a so-called cut-off time. If you place an order before the cut-off time, the fund manager will execute your order at the price of the cut-off time of the same day. If you place an order after the cut-off time, the fund manager will take your order to the next day and execute your order at the price of the cut-off time of the next day. Most European investment funds have their cut-off time at the end of the afternoon. Under the product features of the investment fund you can read what cut-off time applies to that investment fund.
There is a difference in the way the fund manager determines the price of the investment fund. This has to do with how the investment fund can issue new participations. We distinguish between an open-end and a closed-end investment fund here.
Most investment funds in which you can invest with ABN AMRO are active investment funds. A fund manager of an active investment fund chooses the investments according to a certain strategy and tries to achieve a higher return than that of the comparative index (the benchmark).
An Exchange Traded Fund (ETF) is usually a passive investment fund. This means that the fund manager of the ETF only tracks the benchmark and therefore wants to achieve the same or almost the same return as the benchmark.
