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INVESTMENT FUND

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INVESTMENT FUND

An investment fund is a supply of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange-traded funds, money market funds and hedge funds.

 

BREAKING DOWN 'Investment Fund'

With investment funds, individual investors do not make decisions about how a fund's assets should be invested. They simply choose a fund based on its goals, risk, fees and other factors. A fund manager oversees the fund and decides which securities it should hold, in what quantities and when the securities should be bought and sold. An investment fund can be broad-based, or it can be tightly focused, such as an ETF that invests only in small technology stocks.

 

Open-end vs. Closed-end

The majority of investment fund assets belong to open-end mutual fund. These funds issue new shares as investors add money to the pool and retire shares as investors redeem. These funds are typically priced just once at the end of the trading day.

Closed-end funds trade more similarly to stocks than open-end funds. Closed-end funds are managed investment funds that issue a fixed number of shares, and trade on an exchange. While a net asset value (NAV) for the fund is calculated, the fund trades based on investor supply and demand. Therefore, a closed-end fund may trade at a premium or a discount to its NAV.

 

Investment Funds: Hedge Funds

A hedge fund is another type of fund that pairs stocks it wants to shorts (bet will decrease) with stocks it expects to go up in order to decrease the potential for loss. Hedge funds also tend to invest in riskier assets in addition to stocks, bonds, ETFs, commodities and alternative assets. These include derivatives such as futures and options that may also be purchased with leverage or borrowed money. 

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