If the idea of putting all of your investments into a single company seems a bit nerve-wracking to you, you’re not alone. That’s one of the reasons why investment funds were developed.
These funds describe a number of different types of opportunities to invest (like mutual funds, ETFs, hedge funds, and money market funds) that allow you to invest in lots of different types of financial securities at the same time.
If this sounds like a lot of technical terms — don’t worry. In this article, we’ll explain these terms so you can start your investing journey
What are investment funds?
Funds are pools of various investors’ money that are used together to purchase different kinds of financial securities. In these types of investments, individual investors still control and profit from their own shares.
They can still individually decide to buy or sell more shares and what to do with their earnings (or losses). Financial advisors generally manage investment funds.
There are several benefits associated with investing in investment funds as opposed to other types of financial instruments. When your money is combined with that of many other investors, you have access to a greater range of investment opportunities and different types of financial advisors.
Some options even have low financial management fees and tax benefits, meaning you’ll ultimately have a higher profit.
Read also: A smart investor always follows these 5 investment tips
Another important benefit associated with investment funds is that they are diversified. Different types of funds may incorporate a variety of different types of assets. Depending on the type of fund, these may include stock shares, bonds, real estate, specialized assets, or other types of financial securities.
What are the different types of investment funds?
There are a number of investment funds
Mutual funds
Mutual funds are like a basket of investment securities. These securities are combined and shares of that group are divided up and sold off to investors. A share of a mutual fund represents a slice of a diversity of different securities (rather than, for example, a share of the stock of one individual company).
ETFs
Exchange-traded funds (ETFs) are like a hybrid of investment funds and stocks because they share characteristics of both. Like index investment funds, ETFs are passively managed, cheaper, and diversified. Like stocks, ETFs can be intraday traded and bought through brokerage accounts. Shareholders get a proportional share of earnings and losses.
Money market funds
A money market fund is a type of mutual fund (not to be confused with a money market account). It typically invests in cash, debt-based securities, or cash-equivalents. They’re generally considered to be a less risky investment option. Like other types of mutual funds, investors can shares.
Hedge funds
Unlike some other types of investment funds, not everyone can invest in all types of hedge funds. Normally, accredited investors or folks with a high net worth or income can invest in these financial instruments. Hedge funds usually specialize in investing in stock, private companies, real estate, specialized assets (like funding patents or creative products), or some types of bonds.
Investment funds are diverse, professionally-managed, and versatile, so it’s easy to understand why they are growing in popularity among investors. Including these resilient, diversified investments can be a smart investment strategy.
For more investment ideas, check out our other articles in our Investium Academy financial literacy library.
