Mutual Funds
Mutual funds are financial instruments with collective participation, i.e. in which the capital provided by several savers is used and invested as if it were a single asset. The amount of money made available by each individual investor is called a mutual fund share or participation share.
Mutual funds are usually managed by an intermediary, i.e. a figure who puts the investor in contact with the financial market, also referred to as an ‘asset management company‘. To open an investment fund, it is therefore necessary to turn to dedicated financial intermediaries, generally represented by bank or private advisors, bank branches and online platforms. Once the most suitable asset management company for your needs has been identified, a fee, called an entry or management fee, will need to be paid to access the mutual fund.
Compared to other financial products, mutual funds fall into several asset classes, as capital can be invested in several different instruments.
This characteristic is essential to diversify your investment portfolio in order to try to amortise risk.
Depending on their knowledge and objectives, each investor must consider the type of mutual fund best suited to their needs. A first distinction can be made by analysing the financial instrument in which you invest.
In equity funds, for example, the collective capital is invested in shares. It should be remembered that, compared to other types of investments, the equity market exposes the shares more to market trends, increasing the possible risk.
Bond funds, as the name might suggest, invest units in bonds.
If you want to further diversify your portfolio, not limiting yourself to investing exclusively in stocks or bonds, you can also consider balanced funds. They are forms of investment that allow you to invest your capital in both bonds and stocks. The percentage of units dedicated to shares and that on bonds varies from fund to fund.
In addition to the financial instruments invested in, mutual funds can also be categorised on the basis of their objectives and time horizon.
Contrary to what you might expect, mutual funds are not necessarily long-term financial instruments. There are some types of funds, such as money funds, in which capital is invested in short-term investments with the aim of preserving the value of money, acting as de facto substitutes for the classic bank deposit.
For more experienced and risk-oriented investors, there is a non-traditional, speculative type of mutual fund, i.e. one that is based on making money based on the difference in prices at certain times in the market. These funds are called hedge funds, or speculative funds, and have absolute return as their main objective, an investment strategy that aims to generate profit regardless of market trends.
