Understanding Investment Funds

An investment fund is a type of investment vehicle used to invest in the stock market. An investment fund is where the investor contributes a sum of money into that fund, which has already been invested into certain areas of the stock market. The idea is to minimise the risk by spreading the amount invested into several areas of the stock market at once.

This has the following advantages:

· Minimises risk to the investor as the fund will be configured to buy stocks and shares in different commodities.

· Can be configured on the basis of risk, so the more adventurous may look for a high risk, high return fund, while a more cautions investor may look for a low risk, low return fund.

· Avoids the scenario of putting your eggs in one basket, which many financial people would advise against doing.

· They are good for the inexperienced investor as they invest in many areas of the market.

It is worth remembering that stocks can do well one year and perform poorly the next.

Investment funds still require key decisions to be made, especially in the area of risk. Though some investment funds may be labelled as cautions, or low risk, they can still carry a significant risk of not making money in the stock market, and subsequently high risk funds may not carry as much risk as originally thought. This is due to the changing nature of the world economy, and one of the many reasons why the stock market is watched closely.

It is always a good idea to seek some kind of advice on financial matters, as the issues can be complex and difficult to grasp without guidance. The key here is to ensure you choose a financial advisor or investment company which is not just interested in your cash but wants to provide a good service. Some decisions should be made by the investor, and the investor alone as there is no need for outside interference. When choosing a good fund manager, ensure you choose one which basis their fee on the quality of service rather than making unnecessary decisions on your behalf.

Investment funds represent a good way to learn about investing and they are a good investment vehicle in their own right, especially as they are effectively a ready made financial portfolio. They are used by both the seasoned investor and the beginner, and offer value to both.

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