Types of investment funds
Investment funds are a method used to provide funds for a group of investors by keeping their securities, and each investor retains ownership of his securities, and the investment fund contributes to providing a variety of investment opportunities.
Investment funds are also known as a pool of money owned by a group of investors, and it is managed by specialists in the field of financial investment, who make decisions to buy or sell a group of securities, such as bonds and shares, which contributes to the diversification of private ownership in each contributor in an investment fund.
Another definition of investment funds is that they are a means of collecting money for individual investors, companies, and various establishments, and then contracting with a manager or financial expert to manage the contents of investment funds, and the goal is to provide the highest financial returns with the least possible risk.
There is a bunch of types of investment funds, each of that has a role within the stock market, and also the following info about them:
Equity funds
They are funds that rely on the trading of investments in general, away from any ownership of companies within the private sector. These investment funds are considered the most volatile and changeable; Their value continues to rise and fall within a short period. Historically, equity funds have performed the best among other types of mutual funds; This is because stock trading depends on the future results of companies within their market share, which includes an increase in their revenues and profits, which leads to an increase in the value of the rights of their investors.
Fixed Income Funds
They are investment funds that are also called bond funds, and they invest in private debt in public and private sector companies; To provide income based on the distribution of profits, these funds usually contain an investment portfolio that enhances the financial returns for the investor; By providing him with a stable income when equity funds lose their value in the financial market.
Money market funds: They are funds with a low-risk ratio compared to other investment funds, and these funds are limited to high-quality investments, which are often short-term and issued by the government or local companies.
Balanced Funds
Funds that aim to provide a balanced mixture of security (low risk), capital, and income. Balanced investment funds depend on the application of an investment strategy in stocks and fixed income, while the typical balanced fund contains 60% of stocks, and 40% of fixed income, but it is possible to achieve a balance at the maximum or minimum value of the assets.
International funds
They are investment funds also known as global funds or foreign funds, and they are often used by investors who invest their money outside their countries of origin. It is possible that its risk or safety rate may increase more than that of funds for local investments; Because it tends to be more variable as a result of many factors such as political influences.
Specialized Funds
It is one of the most comprehensive investment funds; Because it contains more than one category of securities, most of which are popular, but these funds dispense with the diversity of categories within the economic sector, but rather target funds belonging to certain economic sectors, such as health, money, and technology, which have increased potential for profits, and the types of these funds are:
Regional funds
Are funds that are interested in applying investment within a specific region; That is, the focus is on a specific place, such as governorates or countries, and these funds are easy to use in investments that depend on the purchase of foreign shares.
Social funds
Also known as ethical funds, they depend on the application of investment in companies that achieve specific investment criteria linked to ethics; It doesn't invest money in arms or liquor companies.
Index funds
They are funds that are interested in investing within several indicators, and include the results of stocks in the financial markets. Index funds are characterized by being low risk.
Features of investment funds
Investment funds are one of the most popular investment options among people; Because it provides many advantages, the most important of which are:
Professional management
Investment funds provide a group of managers who are looking for the best investment methods for securities, and monitor the performance of investment funds.
Diversity is the ability to invest in the securities of a group of companies and institutions, which contributes to reducing the risk ratio in the event of bankruptcy or loss of a company.
Liquidity
It is to provide the possibility of selling shares of investors if any investor needs to obtain financial liquidity.
investment fund risks
Investment funds are affected by a range of risks, and they are distributed according to the following categories:
Low-risk investment funds
- They are funds that are characterized by their low risk, and have the following characteristics:
- low level of risk; Because investors are interested in reducing risk to stay away from the negative results resulting in the short term of the investment.
- Stay away from all fluctuations in investment prices to ensure that all investments remain safe.
- Relatively low profits; Because of the low level of risk approved in these funds.
- The constant need of investors to obtain financial liquidity.
Medium-risk investment funds
They are funds with relatively medium risks, and are characterized by the following characteristics:
- The ability to withstand various changes in prices, while accepting the idea of financial losses in the capital.
- The need for liquidity is almost moderate.
High-risk investment funds
These funds depend on the following characteristics:
- The presence of great experience among the investors in these funds within the financial markets.
- The need for financial liquidity is very little.