Where to invest, in a fund?

An investment fund is a vehicle to channel different people’s savings for the purchase of shares and debt issued in an official and regulated market.

This vehicle is virtually identical to a SICAV. The distinctive feature is that the share of diversity of people involved in is greater. It is defined as a collective vehicle because of that participation of people.

Investment funds are required to maintain a portion of the capital raised in cash in order to facilitate any partial or full withdrawals of their investors.

This investment vehicle is governed by the Regulations proposed by the promoting entity. This regulation refers to the mode of investment and divestment, the manager’s remuneration, the type of assets it invests in and the type of financial markets, among others.

Investing mutual fund allows you to enjoy several advantages:

1. Managing the savings of an individual through investment funds allows that person to operate as if he/she had his own SICAV. The reason is:

i)   Both types of entities have identical taxation (1% on profits);

ii) Qualified investment funds are those classified as UCIT 4. Unit holders in a qualified investment fund are not taxed when they disinvest provided the amount received is used to invest in another qualified investment fund. So, the saver can modify the investment profile as if he/she had a SICAV;

2. Regarding the professionalism of management, it should be noted that most savers do not have the means or time to make adequate decisions in the face of market developments. The investment through funds offers a professional management with the capacity and resources to face the investment decisions.

There is a mistaken belief that investing in shares is clearer than investing through investment funds. However, this perception is far from reality. Choosing between one or more shares is not even close to the saver’s ideal investment. The reason is the lack of risk perception: an individual does not have the quality and amount of information available to professional managers.

In addition, management allows the taking of protective decisions with derivatives or hedges. These mechanisms are beyond the reach of individuals both because of its specialization and the opportunity cost.

The remuneration of the fund manager is determined in the regulations of each fund and it is under the supervision and approval of the regulatory body, in this case, the CNMV. Sometimes managers ask the regulator for an improvement in their remuneration conditions, especially when the fund has a high success rate.

3. Thirdly, the key of investment funds is the possibility of diversifying investment. An investment fund can invest capital in different assets, regardless the country or sector in which it is invested.

In this way, an investment is more secure since the diversification has as a direct consequence: the risk minimization.

4.  Lastly, the most attractive aspect of funds is their tax advantages.

Investment funds are exempt from taxation until their repayment. In addition, funds are transferable in an unlimited way, and the investment can be transferred from one fund to another without taxation provided that the capital is not available to the investor. Taxes will only be paid when the investment is fully or partially refunded, giving rise to the corresponding effects on Personal Income Tax.

Each investor has his own specific objectives. Given the characteristics of the investment fund and the diversification of investments, it is very feasible to achieve the objectives set in each case.