The mutual fund industry encompasses different strategies and types of assets. In this sense, there are almost as many types of investment funds as there are different investment strategies.
Next, we are going to analyze the different types of investment funds that exist according to their classification.
According to the risk of the fund
Investment funds differ from each other by the risk that the participants assume when they hire it. Thus, a classification can be made with up to four types of investment funds:
- Fixed income investment funds, which invest fundamentally in fixed income instruments, such as public debt securities, corporate bonds or time deposits.
- Equity investment funds, which invest most of the fund’s assets in variable income assets, such as company shares, other variable income funds, raw materials or derivative instruments, among others.
- Mixed investment funds, a combination of both.
- Monetary funds, with a short-term investment vocation, invest in fixed-income securities for less than 18 months, which guarantees liquidity.
According to the expectations of results
Another of the classifications of investment funds is according to their expectation of generating results. Thus, there are several types:
- Absolute return funds, which always seek positive profitability regardless of market conditions.
- Guaranteed funds, which guarantee the total capital invested at source (excluding any profit / loss caused by the currency exchange, if applicable) or a percentage of that capital (for example, 95%) at the end of a fixed term.
According to its dividend distribution policy
The distribution of dividends is another of the categorizations of investment funds, which can be divided between:
- Accumulation funds, which reinvest dividends in the fund’s assets. This option has tax advantages, since you do not have to pay taxes on the profits obtained.
- Distribution funds, which distribute dividends among their participants periodically (monthly, quarterly, semi-annually or annually), depending on the profit distribution policy of the companies that make up the fund.
According to the type of management
Two types of funds can be differentiated depending on their management strategy:
- Active management investment funds, in which the manager actively participates in the selection of assets that make up the portfolio. They aim to outperform the benchmark consistently over time.
- Passively managed funds, with index funds or ETFs, that try to replicate the behavior of a benchmark index. The manager is limited to selecting the assets that are part of the index.
According to the type of asset in which they invest
Mutual funds usually invest in listed companies. However, there are other investment funds that also invest in other types of assets:
- Funds from the real estate market, which invest mainly in real estate assets intended for rent. They come from the famous REITs in the United States, and in Spain they have the legal form of SOCIMIs.
- Commodity funds, which invest primarily in commodities such as gold, oil, silver or copper.
- Funds of funds: it is a type of fund that does not invest directly in financial assets, but takes shares in other investment funds or buys shares in investment companies.
In general, these are the most common classifications when talking about mutual funds, but they are not the only ones. As we have seen, there is a great variety of instruments depending on their characteristics that adapt to the risk profile of each investor.
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