What is an investment fund?

Investment funds ,  also known as  Collective Investment Institutions (IIC),  are collective investment vehicles managed by a professional manager, that is, a group of savers delegate decision-making on the investment of their assets to professional managers.

This investment is made jointly in the assets that the management team considers appropriate to obtain the  maximum possible profitability  based on a previously defined investment strategy. In other words, what an investment fund does is take the money of many savers to invest on their behalf.

With this definition of an investment fund, it is a vehicle made up of assets, which does not have legal personality, and which is divided into  shares


What does an investment fund invest in?

The fund can invest in a  wide universe of assets : bonds, stocks, derivatives, currencies, as well as non-financial products such as real estate or commodities. They can also invest in any geographic area.

That is why it is said that investment funds are already diversified vehicles and ideal for diversifying an investment portfolio: they are made up of a large number of type assets. There is only one basic rule that limits what a fund can invest in: they must respect the  established investment philosophy  .

All funds are born with a certain investment philosophy and the distribution of the fund’s portfolio is based on it. This distribution marks the type of assets in which you will invest, which delimits your exposure to certain geographic areas and, above all, the level of risk you assume.

This information can be easily found in the  fund’s prospectus (KIID) . In that document you will find data such as:

  • The maximum fixed/variable income percentage.
  • Regions in which it invests.
  • The investor profile for which the fund is intended. If you are not clear about your risk profile, here you can take a test to find out .
  • The commissions you charge.
  • Historical profitability. 

Normally the fund prospectus, also called  fundamental investor information , can be found on the manager’s own website. Otherwise, you can always check it on the official CNMV website. 

There are also specialized pages such as Morningstar or Citywire with useful information and ratios to compare and choose an investment fund .


Among all the investment fund offerings on the market, we must know what types of funds exist and which ones adapt to the risk profile of each person. The most common types of funds that we find in the market are the following:

  • Monetary funds
  • Fixed income funds
  • Mixed funds
  • Variable income funds
  • Guaranteed funds
  • Indexed or passively managed funds
  • Funds of funds
  • Pension funds
  • Hedged funds

Characteristics of investment funds?

Once the concept of an investment fund has been clarified , it is important to be clear about its characteristics. In other words, what defines this investment tool.

These are the general characteristics of the funds:

  • It is a collective investment, which pools the money of many small savers.
  • It is managed by professionals dedicated full time to managing your money. In fact, the figure of the manager is key in an investment fund (there are even author funds).
  • It is a diversified investment, since it invests in a portfolio of securities.
  • It is a regulated investment. In the case of Spain by the National Securities Market Commission (CNMV) and protected by Fogain or Investment Guarantee Fund.
  • Money is not insured, except in guaranteed funds
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How does an investment fund work?

The  operation of an investment fund  is very simple. The participant contributes his money to the fund and acquires shares.

For its part, the management company integrates that money into the fund and invests it where it considers appropriate (always following the fund’s policy), thus forming the  fund’s portfolio , which is the set of assets in which the fund invests. 

When the investor acquires shares he is buying a part of the fund, that is, he is forming a small portfolio equal to that of the fund.

From there, if the investments go well, the value of the shares will rise and, if not, it will fall.

Likewise, the progress of investments will also affect the assets managed by the fund. In reality, the size of an investment fund can increase and decrease for two reasons:

  • Inverter entry or exit
  • Variations in the market value of portfolio assets .

The first reason will never affect the investment, the price of the shares will simply vary depending on subscriptions or redemptions.

What does affect the investment and the results that the investor will obtain is the variation in the value of the assets.

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Net asset value of an investment fund

The price of the share of an investment fund on a certain date is called net asset value. This value is what will allow us to see how the fund evolves. Technically, the net asset value is the total assets that make up the investment fund, divided by the number of shares in circulation. To give an example, if the shares of the investment fund have a net asset value of €100 and the investor wishes to invest €2,000, the investor will acquire 20 shares. Net asset value of an investment fund

The net asset value is published  daily , taking into account the price at the closing of the stock markets

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