A mutual investment fund pools the investors’ money and uses the capital obtained in this way in a number of investments, thus ensuring diversification through the management of a variety of shares and different investment classes. If you ask any finance industry professional, they’ll undoubtedly tell you that one of the most effective ways of reducing the portfolio risk is through diversification. The advantages of proceeding in this way are that, rather than investing in a single company, industry or any other type of class, pursuing your interests through a variety of shareholdings reduces the potential losses to the minimum. The lower the correlation of your placements, the lower the risk of all of them collapsing at the same time.

   The reason why it can be more convenient to invest in shares through a mutual fund rather than holding on to a single security is that this latter is much more risky. A situation of this kind can be defined as a “non-systematic risk”, which is eliminated if you invest in various different sectors.

   The main questions you have to ask yourself are, what am I looking to obtain from my investment? and, am I investing to obtain an income or to grow my capital?

   With a fund, you can plan an investment which provides you with a constant income, especially in the case of those wishing to increase their pensions. You can also aim towards maximising the overall returns in terms of both income and growth, which is the ideal choice for investors looking for returns in proportion to the level of risk taken on. You can acquire units of “income” which distribute your incomings, and units of “accumulation” to increase your capital.      

   Every fund has different investment objectives, of both short and long term types, which guide the internal strategy and selection of placements. The shares held by the fund are selected and managed by professional portfolio managers, who are in charge of all the buying and selling processes, with a view to satisfying or exceeding the performance levels of a specific benchmark. The fund also has a money manager, who takes responsibility for the investments with a view to generating revenues for the clients, by protecting the value of the capital through investments in portfolio security assets of several kinds. This makes the investment options much more interesting and leads to satisfactory returns.

   Certainly, mutual investment funds involve the payment of fees, which may be very low if the fund is managed passively and higher in the case of active fund management. The cost of the negotiations is shared out among all the investors, to exploit the scale economy, leading to per capita costs which are lower than those that would have been sustained if the investments had been purchased individually.

   To sum up, why should you invest in a mutual fund? Because mutual investment funds are more secure, more profitable and less complicated.