• Private clients
• Saving and investment
• Investment Funds

Investment Funds

What is an investment fund?

An investment fund means assets held under the right of joint-partial ownership by legal or natural persons the management of which is transferred to a management company. In other words, investment fund is made of monetary funds of legal or natural persons (fund members) pooled and used to achieve the common goal of fund members, namely to invest following a certain strategy.

Why are investments in investment funds attractive?

• Investment in investment funds reduces the investment risk as investment funds make investments in different financial instruments, different sectors and different regions.
• Investment funds are managed by professional fund managers ensuring a responsible and effective use of your investments.
• Money in investment funds is invested in different financial instruments and therefore you acquire a basket of financial instruments at a lower acquisition cost. Funds also make investments in such financial instruments which you cannot acquire independently.
• Investment funds are a liquid investment instrument enabling you to sell the investment fund units at any time.
• By giving the investment fund units owned by you as collateral you will be able to conclude a repurchase (REPO) transaction and take out a short-term loan.

Where to look for information on investment funds?

Management companies have to draw up the documents of formation for each managed investment fund – Fund Rules and Prospectus. These documents contain information about fund management strategy, fees and expense, investment related risks and other information necessary for investor.

What are the risks of investment in investment funds?

Investment funds are composed of different financial instruments whose price alterations change the value of the fund. Fund riskiness depends on the riskiness of financial instruments comprising it and therefore even investment funds with the lowest risk may lose part of their value which can result in losses for you. When investing in investment funds it is advisable to learn about the competence and experience of the fund manager and to analyse how is the fund diversified: in what regions and what financial instruments it invests. More information on investment fund related risks is available here.

Exchange-traded fund – means an investment fund whose units are traded on the exchange. The value of such fund’s investment unit is linked with the basket of stocks, bonds, commodities, indices or other financial instruments. Upon acquiring the units of an exchange-traded fund you become a co-holder of the composed basket. The fund value depends on changes in financial instruments it is linked with.

Why are exchange-traded funds attractive?

• It is a universal investment instrument suitable for both long- and short-term investment.
• Funds are liquid due to large trade turnovers and therefore it is simple to buy and sell them.
• Opportunity of investing in a very broad range of financial instruments whose acquisition is difficult for an individual investor.
• Composition of each fund is clear and transparent and therefore investors can in detail asses the strategies of such funds and adopt investment decisions.
• The total costs of exchange-traded funds are lower than those of the funds managed by fund managers.
• Funds are very suitable for risk diversification as they invest in the collections of investment instruments but not in individual ones.

Leveraged and inverse leveraged exchange-traded funds

• Exchange-traded leveraged funds seek the daily result twice above the index the funds are linked with. Such investment funds are composed of financial derivatives and therefore you may incur losses which will be twice above the index the fund is linked with.

• Exchange-traded inverse leveraged funds generate an inverse return on investment for investors: with the indices falling such funds generate a positive return on investment which is twice higher than the negative changes of indices and vice versa – with the indices rising you may sustain a loss which twice higher than the positive changes of indices.

Leveraged and inverse leveraged investment funds are suitable only for experienced investors who understand the risk of such funds and are capable of adopting suitable investment decisions.

What are the risks of investment in exchange-traded funds?

Exchange-traded funds may be affected by all risks typical of financial instruments. The funds are highly dependent on general market tendencies. If funds are linked with a certain sector, negative changes in that sector will have an influence on the changes of the exchange-traded fund. As the funds are traded in foreign markets fluctuations in exchange rates influence return on investment. It is important to note that the exchange-traded funds do not always exactly repeat the composition and changes of the index concerned. When choosing an exchange-traded fund for investment it is advisable to pay attention to the fund’s size, history, popularity and the experience of the fund’s manager. More information on exchange-traded fund related risks is available here.