What are investment funds?

Before venturing into the world of shares, those interested should know how this market works. In order to avoid frustrations and problems along the way, the first step is to know what are investment funds. Check it out below. 

What are investment funds?

Investment funds are becoming increasingly popular among shareholders, especially beginners. To diversify your shares, the first step is to know what are investment funds. 

These funds are well structured, but there are some differences that should be considered before investing. An investment fund is nothing more than a type of financial investment. 

In this case, the people who bet on the funds, known as quota holders, deposit part of their funds to be invested. The main purpose of doing this is to receive more financial gains. 

These securities can be government bonds, commodities, shares and so on. However, all assets are divided into categories, which present high or low risk to the investor. It is important to evaluate them before making any investment. 

How investment funds work

It's possible to say that investment funds work like a condominium of apartments. In other words, each condominium has an owner, who pays a third party to manage and coordinate the other activities, such as cleaning, concierge and so on. 

Condominiums establish their own rules of operation, and these must be followed by all residents. Investment funds work in the same way: shareholders buy a number of shares to invest and pay a fee to third parties to manage the activities. ]

By investing in the shares of a fund, the shareholder is willing to follow the established rules. In this way, just like other investors, they are entitled to the shares, regardless of how much money they have invested. 

What are the types of investment funds?

According to Anbima, investment funds are classified in different ways, and have four branches. This division is made by the CMV, the acronym used to refer to the Securities and Exchange Commission. Check them out below:

1. Fixed Income

Fixed Income is a type of investment fund that works as follows:

• Simple: Around 95% of assets are allocated to federal government bonds or bonds that are considered safer;
• Indexed: These funds follow the variation of a benchmark, such as the CDI, the IMA-B, among others;
• Foreign Investment: This category represents around 40% of the funds invested in assets outside Brazil;
• Assets: Last but not least, in this category the managers do not depend on a benchmark and make the moves through the portfolio. 

It is important to note that Fixed Income can be a low, medium or high duration investment fund. In addition, there is no minimum or maximum limit set for shareholders. But it is important to understand all the rules. 

2. Actions

Like fixed income, shares are investment funds divided into categories. Check them out below:

• Index-linked: These are funds that reapply variations in variable income market indicators. The rest is reallocated to fixed-income funds with low duration;
• Assets: The asset category aims to outperform the reference index. However, it cannot refer to a specific index. Like the first category, it is reallocated to low duration fixed income funds; 
• Specific: Follows characteristics that adopt their own strategies. There are three subcategories of specific shares: closed-end, single-share and FMP-FGTS;
• Investment Abroad: Around 40% or more of the assets are invested in financial assets abroad. 

3. Multimarket 

The multimarket investment fund is divided into the following categories:

• Allocation: These funds are recommended for shareholders who aim for long-term profits, whether in shares, foreign exchange or fixed income;
• Strategy: These are funds that carry out sales and purchases more frequently than others. This category is divided into other subcategories: macro, trading, directional long and short, interest and currencies, among others;
• Investment Abroad: Around 40% or more will be invested in the financial assets of other countries. 

4. Exchange rate

Last but not least, foreign exchange investment funds must invest at least 80% of their portfolio in foreign currency assets. 

What are the advantages of investment funds?

By investing your money in an investment fund, you are guaranteeing several advantages. This action is recommended for people who wish to multiply their income, regardless of the final amount they wish to invest. 

Among the investment fund's many advantages is the number of investment options available to shareholders. It is also very affordable. In some cases, it is possible to find funds with investments starting at R $100.00. 

As soon as a shareholder invests in an investment fund, they delegate a manager to study, choose and operate their assets. This is one of the biggest advantages of the market, especially for those who don't have the time to devote to it. 

What are the risks of investment funds?

As with any investment available on the market, investment fund shareholders run risks. Before investing in any asset, it's important to be aware of them. Check them out below: 

• Credit risk: One of the biggest risks when investing in an investment fund is credit risk. In this case, when a shareholder bets on a stock, the issuer may fail to honor its commitment and default. For this reason, make sure you assess the market carefully; 
• Market Risk: When managers choose options to invest in, they expect a certain level of performance and return. However, when this does not happen, it is called market risk; 
• FGC protection: Unlike other investments on the market, the investment fund does not have FGC protection. In this sense, it acts as "insurance" for shareholders, reimbursing them up to R $250,000 if the institution suffers any liquidation or intervention. 

Finally, for all these reasons, it is important to study all the options before investing in the market.