In recent years, and because of the fall in the profitability of deposits, investment funds have become the best ally for savers. Investment funds are financial institutions managed by a group of expert professionals who invest the money they have raised from the sale of shares. They are a very useful and practical tool for investors with little experience since the choice of financial assets in which they will invest their capital will be in the hands of specialized professionals. When choosing an investment fund, the investor profile is the most important factor. There are many conservative investors who prefer to assume a limited risk, although it implies a lower expected return. And they look for a prudent approach to long-term capital preservation. In view of this, we have developed a ranking of the types of investment funds where these are classified according to the security or the risk they entail.
1. Guaranteed funds
Guaranteed funds are considered the most conservative type among all investment funds. In general terms, these funds ensure the recovery of the capital invested initially. In this case, the risk is practically non-existent as long as the investor respects the final date in which the guarantee is given, so the profitability is very low.
Some guaranteed funds are fixed income, that is, they guarantee a fixed yield on the due date. On the other hand, guaranteed equity funds do not ensure the additional profitability of the investment beyond the recovery of the initial capital. In any case, the guaranteed funds are a totally safe option for more conservative investors, since they do not risk losing the initial capital if they maintain their investment until the end of the pre-fixed horizon.
2. Fixed income funds
This type of fund is characterized by investing most of the capital in fixed income assets. Fixed-income assets are financial assets that oblige the issuer to make payments in an amount and in a period of time previously established. The amount of such payments includes the initial investment and a certain return.
The fact that the coupon of these assets is “fixed” does not imply that its value does not fluctuate over time, but that the expiration term that has been agreed upon is irremovable. At this time the return of the initial capital occurs so, if maintained until then, we know from the beginning its profitability. In any case, the value of these assets tends to suffer few fluctuations, which depend, mainly, on interest rates. Therefore, it is considered that fixed-income investment funds have a low risk, making them an appropriate option for conservative investors.
Within the funds of fixed rent, the ones of lower risk are the monetary funds. Monetary funds, in addition to the lower volatility of an investment in fixed-income assets, offer great liquidity since they have shorter maturities. This means that they can be easily and quickly transformed into cash without a loss of asset value, which can be very practical for those individuals whose finances depend on these investments.
However, a context of low and even negative interest rates for the closest maturities means that the expected returns from these funds, although subject to minimum risk, may be negative. That is, the money funds assume what we could define as the cost of security.
3. Mixed funds
Mixed funds invest in both fixed-income assets and variable income assets. The proportion of capital that goes to each type of asset will determine the level of risk (and profitability) of the investment fund. In any case, although the percentage of investment in equity assets exceeds the investment in fixed income assets, this type of funds would continue to be safer than purely variable income funds, since there will always be a minimum percentage of fixed income. , active whose behavior tends to be different from that of the stock market and therefore acts to soften the movements of the fund. The main advantage of this type of funds is that they allow diversifying investments without having to resort to other investment funds.
4. Global funds
The global funds have complete freedom in terms of the strategy they are going to implement, since they are not obliged to set in advance any of the conditions of the investment, from the type of financial assets to the geographical distribution of the capital. This flexibility in its management policy means that the fund’s portfolio is able to adapt to changing market environments. And for this, you need the freedom of not having predetermined percentages in each asset class. However, in the vast majority of cases, these are multi-active and global funds, so their level of risk does not usually exceed that of funds that invest exclusively in equities.
5. Equity funds
The investment in equity assets or stocks implies that the yield obtained is not fixed: it can be high, low and even negative. This type of investment offers an unlimited return but also carries a high risk. On the one hand, the value of the shares is affected by fluctuations in the economy and the markets and, on the other hand, the evolution of the sector and the company itself directly affects the price of these shares.
These factors make equity funds an option that generates uncertainty and may not be the most appropriate if the investor’s profile is conservative. On the contrary, if the profile is risky and what is sought is the possibility of obtaining a higher profitability, investing in shares is, without a doubt, the best option.
This ranking reflects the most common investment funds, although there are several other types. Obviously, the more secure the investment fund, the lower the profitability that should be expected from it.