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What Are Funds? – Definition, Benefits, And More

What Are Funds_ – Definition, Benefits, And More

Definition

Funds of the most current gadgets in the stock market is mutual funds as an option to find a diversified portfolio that provides better returns without putting equity at risk.

The first investment fund was created in Holland in 1774 when the Dutchman Adriaan Van Ketwich offered to contribute a minimum capital to small merchants and people with plentiful resources.

With these funds, thousands of people invested their money in the sovereign debt of other European countries. At that time, these instruments worked more like trust. That is, the participants gave their funds or assets to someone else to manage them.

Sometime later, King William, I in the Netherlands founded fixed capital investment companies in 1822 to favor that region’s economy.

Characteristics of The Investment Funds

One of the main characteristics that they are made up of a basket of financial assets that can include stocks and government debt, generating different combinations to obtain positive returns with less exposure to risk.

There is a diversity of funds that adapt to the type of investor, the risk, and the investment horizon of the person who decides to contract one of these portfolios in the market. With this measure, the client achieves good diversification.

Diversification in the assets that make up an investment fund allows better risk control; however, it is crucial to consider that it does not eliminate that factor. Each client must know the risk they are willing to take and one way to find out is by understanding their profile.

In general, mutual funds can be classified according to their time horizon:

How are Mutual Funds Classified?

The types of investment funds that exist are defined according to the investor’s profile and needs, allowing access to the Stock Market and achieving diversification in their portfolio. In general, there are funds of variable income, debt, mixed, among others.

Fixed income funds: these are portfolios that invest in bonds issued by federal, state, and municipal governments, banking institutions, or companies according to money market conditions. These funds rated based on the credit quality of their assets and their ability to pay.

Equity funds invest in assets with greater exposure to risk, such as the shares of listed companies on the stock market, whether national or international.

The National Banking and Securities Commission (CNBV) adds the Capital Investment Fund (FINCA’s), which temporarily invests resources in private companies to finance a project or its operation.

The Limited Purpose Investment Fund only invests in financial assets established within the portfolio’s standards. The placement of the shares they acquire can offered to any public.

How to Invest in Investment Funds

In the market, there is a sweeping change of funds that the interested person can choose from. To control which one is best for you, you must ask yourself how much money are you willing to invest? How long do you want to sustain that investment plan? And how much risk are you ready to take?

The intention to identify the risk tolerance and the term that the investor willing to assume and establish the financial assets it recommended to invest in. Once that point settled.

With the correct definition of the person’s profile, the following variable you must consider is the profitability you can obtain with the portfolio you choose to determine how much you will earn. To begin with, the National Commission for the Protection and Defense of Users of Financial Services (Condusef) recommends analyzing the historical returns reported by the assets that make up the investment fund to estimate each instrument’s earnings.

This exercise is an excellent alternative to evaluate possible assets to invest without forgetting that the performance that a share reported in the past does not guarantee the same level of profits in the long term.

The Benefits of Investment Funds

Among the main benefits for clients in achieving better profitability of the invested resources. We also find a series of options, such as the availability of its resources from one day to quarterly, depending on the liquidity granted by the particular fund.

Professionalized management. The investor has specialized advisers in the financial markets who make investment decisions for the fund’s resources.

Cost-effectiveness. The possibility of having attractive profits despite investing minimal amounts. However, it is essential to clarify that these returns are subject to market behavior.

Diversification: It allows having more than one financial operation in different assets and markets that, in many cases, are difficult to access due to high amounts.

Liquidity. It is crucial to consider the features of the fund. In this case, the investor can access its resources in a certain period. For example, with Money, you can access your capital from one day to every three months.

Easy follow-up. The information that operators provide to their clients on how their portfolio is performing is easier to know, which gives investors peace of mind.

Transparency and security.  It is safe to invest in mutual funds. By regulations, financial operators and institutions must have all public information supervised by the National Banking and Securities Commission.

Tips for investing in Mutual Funds

To choose a fund, investors must consider their liquidity needs, expectations of return, the level of risk tolerance, and the length of time they want to keep their money invested. Here are some tips for beginners:

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