An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group.
To invest is to allocate money in the expectation of some benefit in the future.
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These advantages include an ability to:
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hire professional investment managers, which may potentially be able to offer better returns and more adequate risk management;
Asset management, broadly defined, refers to any system that monitors and maintains things of value to an entity or group.
benefit from economies of scale, i.e., lower transaction costs;
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.
increase the asset diversification to reduce some unsystematic risk.
Terminology varies with country but investment funds are often referred to as investment pools, collective investment vehicles, collective investment schemes, managed funds, or simply funds.
The regulatory term is undertaking for collective investment in transferable securities, or short collective investment undertaking.
An investment fund may be held by the public, such as a mutual fund, exchange-traded fund, or closed-end fund, or it may be sold only in a private placement, such as a hedge fund or private equity fund.
A hedge fund is an investment fund that pools capital from a limited number of accredited individuals or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk-management techniques.
A private equity fund is a collective investment scheme used for making investments in various equity securities according to one of the investment strategies associated with private equity.
Private placement is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors.
The term also includes specialized vehicles such as collective and common trust funds, which are unique bank-managed funds structured primarily to commingle assets from qualifying pension plans or trusts.
Investment funds are promoted with a wide range of investment aims either targeting specific geographic regions or specified industry sectors.
Depending on the country there is normally a bias towards the domestic market due to familiarity, and the lack of currency risk.
Funds are often selected on the basis of these specified investment aims, their past investment performance, and other factors such as fees.