An investment fund is an institution that manages the money of investors. The main purpose of such fund is to pool the funds (property) of depositors and manage them, in particular, invest them to generate income and/or save funds.
Both legal entities and individuals can be fund participants. The management of the fund’s activities and, accordingly, investments is carried out either directly by the fund manager, or by an investment company invited as a manager (read more here). All over the world, the infrastructure of investment funds is quite well-developed, they account for a significant part of the total volume of commercial activity on the stock exchanges.
Differences between investment funds and investment companies depend on the specifics of the legislation of each particular jurisdiction. As a rule, the concept of “investment company” is broader than “investment fund”, since investment companies can manage and create funds, and not vice versa.
Origin of the term. The first investment fund in legal practice was established in Belgium in 1822. The massive development of such organizations began after the Second World War, now they are most common in the United States and Great Britain.
Varieties of investment funds
Depending on the form of creation, investment funds are joint-stock and mutual.
The first ones are open joint-stock companies, the extraordinary function of which is the investment of property. They place ordinary shares, buying which anyone can become a member of the fund.
Mutual investment funds are not legal entities and are defined as a property complex, which consists of property placed in trust. To become a member of such fund, you should purchase a certain share (registered security).
Currently, there are open, interval and closed mutual funds. Open-end mutual funds allow members to buy or sell their units optionally, interval mutual funds allow this only at certain intervals, while closed-end mutual funds do not allow free float of units and usually have a longer investment period.
In addition, investment funds may differ in terms of investment objects: they can be stock or bond funds, as well as mixed funds. There are also so-called industry-specific investment funds — they specialize in certain areas of investment (for example, real estate, engineering, oil and gas, etc.).