For a long time, investment funds were one of the most popular forms of investing savings, unfortunately, after the OFE reform, most Polish investors lost interest in them. However, is it now worth investing money in investment funds?
What are investment funds?
It is no secret that with a big capital there are more investment possibilities. A trader with a million zlotys has a completely different choice than someone with only a thousand zlotys. In order to bypass such restrictions, investment funds have been created, which are a form of mutual investment.
Investment funds are a kind of assets which an investor acquires in the form of units or a certificate of participation entitling them to a part of the generated profit.
There are many types of investment funds, although most operate in private or corporate sectors. They are usually aimed at trading shares or bonds, money market activities, or granting loans.
How to invest in funds
In order to invest in the selected fund, it is enough to purchase a part of it, i.e. the participation unit. This unit is non-transferable, i.e. it cannot be sold or given to another person. If you want to resell the units, it is bought by a given fund, which is obliged to provide a current valuation at least once every seven days. This is the case for open funds.
Closed-end funds operate in a slightly different way, as they mainly issue the so-called participation certificates, which are a transferable security. Both types of funds, however, are specific investment tools of strictly defined characteristics.
The best investment funds
How we describe the best investment funds depends on the investor’s expectations. Aggressive growth funds will be the best option for those looking for opportunities to increase the value of capital. They are one of the more risky because they target uncertain or clearly fluctuating assets.
People who value safety more often choose funds in a form of real-estate. These funds may turn out to be profitable, but only after years.
What are the characteristics of the best funds
A good fund is a fund that has a solid legal and investment foundation. The legal basis is provided by a properly arranged statute of the fund, defining the way of managing both the fund itself and its units or certificates. The best funds are those that give investors an insight into the investment strategy and clearly set out guidelines on the rights and obligations of the fund towards its members.
The investment base is the way the fund will be managed. Unlike private investments, one investor has relatively little influence on investment decisions within the fund. Therefore, the strategy should be in line with the perspective of individual fund participants from the very beginning. Presentation of a strategy is the first characteristic, by which a potential investor may distinguish a good fund from a rather poor one.
How to choose the best fund?
In order to choose a good fund, some knowledge of investing in necessary. Although the funds are conveniently divided into several categories on a risk scale, not always a low-risk fund will be profitable. The basic advice that investors should follow is therefore to choose a fund that invests in the way the investor would do it.
Choosing a random fund or on a basis of recommendation is not a good choice. A few years ago, the roles of the funds were limited, which resulted in a situation on the market where the remaining funds are fighting fiercely for potential clients. There are many of them and this situation will remain for the nearest future.
Investment funds are supposed to become popular again, but for the time being there is a clear outflow of investors from this sector in favour of individual investments. However, an investment fund is not a bad idea if you are raising additional funds for your retirement or want to invest your savings without having to constantly trade your assets in the stock exchange. Funds are usually a long-term investment, so this is an option for those who want to invest once and just watch the profits grow.