What Are Investment Funds?

Investment funds are collective investment schemes. Instead of letting each investor spread his or her money around in various single stocks; an investment fund pools the resources of several investors and makes large purchases of multiple financial instruments. Each investor buys a portion of the whole fund and enjoys its profits as well as he or she risks its losses.

There are fees for participating in these investment funds but they generally compare favorably to the charges that investors pay when investing alone. A manager who makes decisions about the investment focus oversees the operation of the whole fund. However, a board of trustees oversees the actions of this manager.

Types of Investment Funds

There are basically two types of investment funds.

• Open-end funds are divided into equal shares and sold to the public. Investors who are interested in buying shares purchase them directly from the fund when they are available. Investors also have the right to sell their shares back to the fund at any time for the present market value. A typical example of an open-end fund is the mutual fund. This is a very common and popular investment scheme in the United States.

• Closed-end investment funds are a little different. Such a fund will make an initial public offering (IPO) or sell shares privately. All shares are distributed at this time. Afterward, shareholders may trade shares among themselves. The fund is not required to buy the shares back.

These investment schemes are considered safer than investing alone. The variety of shares owned by the fund provides a hedge against financial disaster through diversity. Investment funds typically use potential savings and the reputation of their leadership team to attract investors.

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