We have already seen in our article about diversification that a prudent investor does not put “all his eggs into one basket”, but allocates investments to several different assets in order to spread the risks associated with these investments. We have also seen that diversifying investments can be a costly exercise.
The use of an investment fund can be an interesting solution which in addition also provides a range of other benefits.
To illustrate this, let’s consider an investment fund that invests in equities. We have already seen that such a fund invests the money entrusted to it by investors in shares of many different companies. If you put your money in an equity fund, you invest from the start in a wide range of companies, and this even with modest investment amounts. You thus realize a good risk diversification at relatively low costs.
An investment fund offers a high level of investor protection. An investment fund is a regulated investment vehicle, and regulation clearly defines what the fund is allowed to do and what not. Each fund must first be approved and will then be continuously monitored by the competent supervisory authority.
The Fund’s assets must be strictly separated from those of its management company, and the safekeeping of the assets held by the investment fund must be entrusted to a depositary (which must be a regulated credit institution). This guarantees that the fund’s assets are not affected in case of financial problems or bankruptcy of the fund company.
An investment fund generally offers a high degree of flexibility in terms of investments. You can invest a single sum of money or smaller amounts at more or less regular intervals, as it suits you best.