Investors are always looking for a reliable way to secure their financial assets. Investment funds and their various types represent one of the key strategies for preserving and safeguarding these individuals’ capital. These funds are referred to as financial resources that play a secure vault role for capital preservation and mobilization. They are often established and registered by professional managers.
What Are Investment Funds and Their Types?
The definition of an investment fund is based on the objectives for which it is formed. Some of these objectives relate to the performance or the investment field of the fund, while others are defined based on the geographic region in which the fund is established. Another criterion is the extent of the fund’s activity and the range of capital acceptance in it. We will introduce investment funds and their types in the following.
Professional managers in the field of economics smartly proceed to establish and initiate investment funds. In fact, they use their financial management power to attract other people’s capital to mobilize small and large capitals, thereby gaining more profit in addition to national and regional developments. The more credibility and value these funds have, the higher their ability to attract capital.
The assets attracted as capital gain credibility in various forms, including securities, stocks, bonds, and similar items. Capital owners play the role of partial owners who, by contributing their properties and assets, gain the opportunity to invest in the mentioned funds, and this happens in a lower-risk and more secure condition for them.
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Types of Investment Funds
Investment itself can be performed in various forms, based on which, the funds that attract people’s money and assets also come in different shapes, which we will get to know more about:
Open-End Funds
Also known as open-ended funds, in this type of investment, depositors or investors are allowed to issue, sell, or redeem their shares anytime they wish. The shares are valued and priced based on the Net Asset Value (NAV) and thus, their profit is calculated with the conditions of the day.
Closed-End Funds
Investment funds and their types also include a category known as closed-end funds, which, unlike the previous group, hold a fixed and specific number of shares acquired in one transaction. Essentially, the capital of these funds is raised through the sale of certificates and the attraction of public capital. The sale of these certificates is carried out by a reputable broker and sometimes by banks, and individuals or investors will own a quantity of them proportional to their participation.
Exchange-Traded Funds (ETFs)
With a mix of open and closed fund features, another category of these financial reserves has been formed to facilitate traders’ access to greater flexibility. This method utilizes price differences across several trading markets for pricing.
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Index Funds
In discussing investment funds and their types, we reach a different method whose main activity is that shares are exposed to a specific index and measured based on it. This base is mostly used for long-term investments. The operation of index funds is introduced as passive investment; because the shares or securities in these transactions are placed under pre-determined criteria and do not actively enter the trading market.
Income Funds
The goal of these types of funds is to achieve higher profit; therefore, they strive to attract large capitals from powerful investors and try to obtain the highest and most profitable rate of return from the market with the least path; thus, in any transaction predicted to be profitable and increase returns, from trading goods to investing in different sectors, participation, and buying short-term shares, and other areas, they will engage in activity and commerce.
Conclusion
Owners of both small and large capitals are looking for secure investments, and economic managers are looking to attract aimless capitals. One of the meeting places for these two groups is investment funds and their types, which try to benefit both parties with different methods and performances. Six types of investment funds, namely “Open-End Funds,” “Closed-End Funds,” “Mutual Funds,” “Exchange-Traded Funds (ETFs),” “Index Funds,” and “Income Funds,” with different methods, are ways to increase capitals.
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By David Taha