investment funds
Investment Funds are a means used to collect money from a group of people in order to invest it in securities, such as bonds, stocks, and other assets. All of the assets of the investment fund are called the investment portfolio. Investment funds are defined as a financial basket that allows investors to collect their money in one investment fund, and it is managed based on professional administrative methods. Other definitions of investment funds are a group of diverse investments, such as money, stocks, and bonds that are collected together in one fund that is financed. Through private investments in individual and institutional investors.
Investment fund operations
Investment funds rely on applying a set of processes, which are:
- Pricing: It is the method that is used to determine the price of each investment unit in the investment fund. Pricing is determined according to the nature of the investment funds when they are established, and depends on the use of two systems:
- Closed-end fund system: It is the system in which the investment fund manager does not announce the prices of its units except on the last day of the fund’s life, but this does not mean that the units do not have certain prices during this period. It is possible to know its value by exchanging it within the financial markets or selling it among investors.
- Open Fund System: It is the system in which the investment fund manager chooses a specific day in order to announce the prices of units in the fund. This day may be weekly or monthly, and it is called the pricing day, which enables current investors to leave the fund to obtain financial liquidity. It also contributes Entry for investors who want to participate in investing within the fund.
- Imposing fees on investors: These are fees imposed by the investment fund on its investors with the aim of saving a portion of its financial costs, especially those related to special operations in the funds. Some funds impose fees to participate in them, such as investment funds whose contents are traded in the financial markets in a regular manner. Some funds also rely on Others impose financial fees to leave, and some types of funds also link these fees to the period of time during which the investor remains within the fund, and the value of the fees is reduced as the period of stay of the investor in the investment fund increases.
- Redemption and trading: They are among the elements used to attract investors to investment funds. These funds are designed to provide the appropriate means to achieve the role of redemption and trading. The open-end fund system relies on the redemption application, which provides investors with the possibility of recovering their money. Therefore, this type of fund depends on its manager maintaining a percentage of financial liquidity, which depends on a group of factors, such as the special experience of the fund manager and the financial and economic environment within which the fund is located. As for the closed-end fund system, you cannot obtain financial liquidity except through trading its components. In the regulated financial market.
- Administrative fees: These are financial fees that the fund manager receives in exchange for his management of it. The manager’s fees are calculated as a type of financial incentive that he receives in exchange for his contribution to the growth of the investment fund. Therefore, these fees are calculated through what is known as the net value of the assets within the fund. The manager calculates The fund values these assets on a regular basis, and in the open fund system the value is calculated on the day designated for pricing, and the manager receives a deduction of his financial remuneration based on a percentage agreed upon in advance, and the special percentage in administrative fees often ranges between 1% - 5% during the year. .
- Reserves: It is a financial value that the investment fund retains from profits. With the aim of achieving stability and balance after paying the value of dividends to shareholders in the investment fund, and providing compensation for any losses that may appear at times.
Characteristics of investment funds
Investment funds are distinguished by many characteristics that distinguish them as important financial instruments. The following is a group of the most important characteristics of these funds:
Read also:How did he become rich in halal- Difference in distribution of net asset value; Because investment funds rely on special regulations and legislation to regulate their work within the state.
- Diversity in the forms of investment funds that rely on both public offerings and private offerings in dealing with investment units.
- Ensure that minimum limits are set for investment and the quantity of investment units published in the subscription prospectuses, which include information about the fund, the body supervising it, the manager responsible for managing it, and a set of other information that must be provided to current and new investors.
- Relying on the existence of an independent administration for the fund that is completely different from the private administration in the facility that worked on issuing it. Legal legislation provides what leads to the issuer of the investment fund committing not to manage it, which contributes to the absence of conflicts of investment interests.
Benefits of investment funds
Investment funds are considered one of the popular investment tools among investors. Because it contributed to providing many benefits to the investment sector, including:
- DiversityDiversification is one of the most important benefits of investment funds for all types of investors who are interested in diversifying the financial assets in their funds. The diversification process depends on the presence of a mix between the various types of investments in the investment portfolio in order to use them as a means of managing risks.
- division(In English: Divisibility) is one of the benefits of investment funds that contribute to helping investors who do not have a lot of money to buy securities by providing investment funds with small categories in terms of the value of the securities. These funds provide the possibility of making periodic investments by implementing plans. Average cost monthly purchases.
- LiquidityLiquidity is the ability to participate and withdraw from investment funds easily. Because of the possibility of selling the investment fund within a short period of time, there is often no significant difference between the current value of the fund in the market and the selling price.
