What is investment fund?

According to "Personal finances encyclopedia", investment fund - - is an investment institute whose resources are formed due to releasing of own securities and selling to their fine investors with the purpose of attraction of the savings of wide layers of the population. Means are placed on behalf of investors in securities of the state, other companies, and bank deposits.

Coming from economic essence of investment fund the operating Ukrainian legislation uses the concept of collective investment institute institute and treats it as - the corporate or unit investment fund which unites (involves) cash resources of investors for the further investment in securities of other issuers, the corporate rights and the real estate to receive profit.

Investment funds - one of the most widespread and known ways of a collective investment of cash resources in the modern world as association of means of many investors allows to expand essentially a spectrum of investment opportunities and to carry out more effective and professional management of these means. By buying securities of fund, investor becomes the fund participant and receives the share in its assets. The income of investments is formed due to growth of the fund investment object cost that finds reflection in growth of course cost of securities emitted by fund (investment certificates or shares).

There are corporate and unit investment funds.

Corporate investment fund – is an institute of joint investment which is created in the form of the open joint-stock company and carries out an exclusive kind of activity - activity of joint investing.

Unit investment fund – are assets which belong to investors as the joint share property, are under control of Asset Management Company (AMC) and which accounted by AMC separately from results of its economic activities. Unit investment fund is not a juridical person.

Depending on the procedure of activity investment funds can be:

• open-end, fund (or asset management company) takes the responsibility to carry out repurchasing of securities at any time on demand of the investor , an issuer of which, fund (or AMC) is;
• Interval, - fund (or asset management company) takes the responsibility to carry out repurchasing of securities on demand of the investor, an issuer of which, fund (or AMC) is, during the period indicated in Prospectus, but not rarely than once a year;
• closed-end, fund (or asset management company) does not take the responsibility to carry out repurchasing of securities at any time on demand of the investor , an issuer of which, fund (or AMC) is until its reorganization or liquidation will be carried out.

Securities dividends of open and interval investment fund are neither charged nor paid.

Investment funds can be terminal and perpetual:

• terminal investment fund fund is established for a specified time, indicated in offering circular issue and when time is expired it is liquidated or reorganized;
• perpetual investment fund is established for uncertain term.

Open-end Investment fund can be barely terminal.

There are diversified and non-diversified funds.

Diversified is an investment fund that satisfies the following conditions:

• the quantity of securities of one issuer in assets is not more than 10% from the total volume of their issue;
• total value of securities that are fund assets in quantity more than 5% from the total volume of their issue for a moment of buying is not more than 40% of the value of net wealth of fund assets;
• not less than 80% of fund assets total value - are cash assets, saving certifications, bonds of enterprises and bonds of local lending, state securities, and securities allowed to bidding at share market or trade-informative system.

Investment funds, that don't have all features of diversified investment fund, are non-diversified.

Ukrainian legislation separates out one more type of investment fund – venture investment fund.

It is non-diversified investment fund of closed-end type, that carries out exclusively private placing of securities, and assets of which for more than 50% consist of corporate rights and securities that are not allowed to bidding at share market.
The participants of venture investment fund can be juridical persons only.

Advantages of Investment Funds

Return and accessibility. The main advantage of investment fund is to give separate investor the possibility to receive the same profit from investment to securities at minor expenditures as large-scale investors - banks, companies. At the same time yield activities of investment funds as a rule, considerably increase percent of deposit.

Among other advantages of investment fund it is necessary to note:

Professional management. The process of making decision on investment portfolio management is multistage and is a result of work of the whole group of specialists of asset management company - financial analysts, risk managers, portfolio managers.
Besides, at the disposal of AMC there are all necessary analytic materials, including on-line information concerning fund market dynamics that allows carrying out the management of investment portfolio more efficiently with fewer risks.

Diversification.. The risk of investment assets reducing is minimized because of double diversification: distributing fund assets among various financial tools (shares, bonds, corporate rights, etc.); distributing fund assets among various issuers within each financial tool (shares of various companies, corporate bonds, local government bodies, state, etc.) Diversification involving negative correlation allows avoiding great fluctuation in value of fund assets: when from one side investments fall in value and from the other - rise.

Liquidity.. Liquidity of open investment funds allows investors to cash in fund securities quickly and withdraw invested cash assets during 3 bank days.
There is a possibility of investment strategy selection. Asset management companies as a rule offer their investors several types of investment funds that differ from each other by their investment strategies. Some funds make investments only to specific sector; others specialize at specific financial tools (bond funds, shares funds). The main criterion of strategies differentiation is risk and yield.