The investment funds have become increasingly popular with individual investors. But what exactly are they? How can you invest in them? What are the benefits and risks associated with these operations? In this article, we'll answer all these questions and more.
What is an investment fund?
The Investment funds are companies designed to raise money from investors. and investors. These funds are then used to invest in a variety of assets such as shares in listed companies, bonds, property, start-ups, SMEs and even other investment funds.
In exchange for their participation, investors receive a return, which is determined by the fund's performance. They may also benefit from a capital gain if the fund has a cut-off date. The financial company that manages the investments charges an annual management fee to remunerate itself.
Investment funds may be set up by banks, insurers, portfolio management companies or other authorised financial companies. For example, the public investment bank BPI France is also creating investment funds, some of which are accessible to individuals.
Advantages of investment funds for individuals
Sometimes savers already invest in investment funds without even knowing it. This is the case, for example, when they have a multisupport life insurance policy, a pension savings plan (PER) or a company savings plan (PEE). These investments allow you to invest in "units of account" and FCPEs, most of which are investment funds.
The main advantage of investment funds is that they pool the money of savers and investors. This gives access to assets that would otherwise be out of reach, while reducing risk through broad diversification. They also offer regular returns if the fund achieves a positive performance, although this is not always the case. Finally, they often simplify access to financial markets and property on a large scale.
Private equity to invest in SMEs
There are many different types of investment fund. Private equity is one of them. These funds finance unlisted companies by taking equity stakes or lending them money.
Private equity funds include :
- Fonds Communs de Placement à Risque (FCPR): These funds are used to finance companies in their early stages of development, and therefore carry a high level of risk. They invest mainly in young innovative or technology-based companies with high commercial development potential.
- Growth capital funds: These are for mature companies such as VSEs or SMEs, seeking capital for a second phase of growth.
- Transfer capital funds: These focus on business purchase/sale transactions. They are used to finance the financial arrangements needed to transfer companies.
Property investment funds
These investment funds focus almost exclusively on property-related investments. In France, they include
- Sociétés Civiles de Placement Immobilier (SCPI): Their sole purpose is to invest in buildings according to a defined strategy, and then to operate them.
- Club deals: These are investment vehicles whose aim is to invest in property projects or companies linked to this sector.
- Undertakings for Collective Investment in Property (OPCI): These invest both in property and in shares or bonds.
Investment funds that invest on the stock market
These are generally organisations known as UCITS (Undertakings for Collective Investment in Transferable Securities). These types of funds can invest in the shares of large companies or listed SMEs, but also in other financial products such as bonds, commodities, currencies, etc.
- SICAVs: These companies invest in transferable securities such as shares.
- FPC: They have the same objective, but a different legal form.
- FCPEs: These are investment funds specific to employee savings schemes, with their own operating procedures.
What is a hedge fund?
Hedge funds are investment funds that have no specific form. They have a bad reputation because they are highly speculative. They are generally intended to invest in a risky and opportunistic manner, taking advantage of certain weaknesses in markets and securities.
This category includes :
- Vulture funds: They buy up the debt of companies or governments at low cost, and hope to make a capital gain by opposing the restructuring of this debt and taking legal action against the borrowers.
- Activist funds: They invest in companies and put pressure on management teams to change strategies in order to maximise profits and boost share prices.
How do I invest in an investment fund?
There are several ways in which individuals can invest in an investment fund.
- Private equity funds and SCPIs can be accessed directly.
- Multi-support life insurance policies and pension savings plans, as well as employee savings plans, are also options.
- Some funds are also accessible via a PEA (Plan d'Épargne en Actions).
It is advisable to seek the advice of an expert in the field when you are a novice, whatever type of investment fund you choose.
Risks and potential returns with investment funds
Investment funds should be seen as an option for diversifying assets. They offer the possibility of boosting a portfolio, but it is important to note that with high return potential comes high risk.
It is difficult to predict the return that can be expected when investing in an investment fund. Past performance is no guarantee of future performance. We therefore recommend that you only invest money that you do not need, and that you ensure that the fund's strategy is suited to your risk profile.
Investment funds can be an excellent option for diversifying your portfolio and potentially increasing your returns. However, it is important to understand the risks associated with these investments and to seek the advice of an expert in the field to guide you through the process.
Call on our services at of Ravel Finance to guide you through your investments. Our experts will help you choose the investment funds that best match your profile and investment objectives. Contact us today to find out more.