Questions / Answers

An investment fund is a structure that pools the cash amounts invested by several investors, who own an interest in common financial assets by subscribing for and purchasing fund units. These assets are managed by professional managers who decide when to buy, sell or hold the securities in the fund's portfolio.

There is a large variety of funds. Here are the most common:

Money-market funds: These funds are invested in money-market securities such as Treasury Bills or other short-term government bonds. With their low volatility, these funds have a relatively low risk exposure and generate regular, if more modest, returns.

Bond funds: Such funds mainly invest in government or corporate debt securities. These investments entitle holders to fixed annual interest payments until the bonds are redeemed.

Asset allocation funds: These funds invest in all asset classes (stocks, bonds, money market, etc.). The relative weighting of the investment in each asset class is dictated by the fund's investment policy.

Equity funds: Equity funds invest the majority of their assets in the shares of various corporations, according to the buy opportunities identified in the market by the fund manager. The potential return of an equity fund depends on several factors, such as the type and industry sector of the companies selected, the fund's geographic approach and its reference currency.

Index funds: An index fund's investment strategy consists in tracking, as closely as possible, the performance of a benchmark index.

Sector funds: These funds are generally focused on only one business sector. Diversification is therefore reduced, but expected returns increase.

Real-estate funds: These funds are either invested directly in commercial and residential real estate, or indirectly through real-estate companies.

Hedge funds: These funds are focused on equities, bonds, currencies and derivative products. Their distinctive feature is that they can sell short, deal on credit and invest in a wide range of financial-instrument combinations.

There are several advantages. Here are the three most specific:

Professional management: Investment funds are managed by highly-qualified professionals who permanently monitor the financial markets.

Risk diversification: An appropriate distribution of investment assets prevents excessive risk concentration.

Accessibility: Investment funds are accessible to all, even to those whose capital available for investment is limited.

Public interest in investment funds has grown constantly in recent years. This is understandable, since funds allow private investors who do not have sizeable sum to invest to attain a level of diversification that would not be possible with direct investment. By investing in a range of stocks, bonds and other products, investment funds offer small investors the advantages of a balanced and diversified portfolio.

Investment funds are suitable for all types of investor. Today, the variety of available funds is so great that, practically anyone can find what s/he is looking for.

Minimum amounts usually vary between CHF 200 and CHF 300.

You may invest as often as you wish. It is in fact more advisable to contribute smaller amounts frequently rather than larger amounts once a year. By making regular, more frequent contributions, your average acquisition cost is optimised, both rising and falling markets.

One of the keys to success consists in investing for the long term. Notwithstanding their characteristic succession of downturns and rallies, financial markets tend to trend upward over the long term. The highest returns are achieved by investors who hold their fund units for a long period and have a clearly defined investment strategy, rather than by those who try to anticipate short-term market movements.

It is never too late to begin, but it's also never to early. However, remember that time is your ally. So why wait to get started?

Each fund is characterised by a different degree of risk exposure. Remember that the greater the risk, the higher the potential gain (or loss). Inversely, lower risk exposure offers a smaller gain/loss potential. The main types of risk are briefly enumerated below:

Market risk: When financial markets weaken, the value of the securities held in the portfolio also diminishes, which directly affects the portfolio's performance.

Commercial risk: If the issuer of a security held in the portfolio releases poor results, the security's value will be affected and the fund's performance may be somewhat weaker.

Interest-rate risk: the market value of shares and particularly bonds can be affected by changes in a market's interest rates.

Currency risk: Investment funds are also exposed to exchange-rate trends in the currencies in which they are invested.

Inflation risk: Inflation reduces the buying power of your money and by extension the real performance of investment funds.

Theoretically, generally when you subscribe or redeem investment fund units, you are required to pay certain commissions. Subscription fees are calculated as a percentage of the invested amount and vary between 0 and 5%. Sometimes, fees are also payable on the redemption of a fund unit. However, these are in general much lower than subscription fees.

Another type of cost is the management fee . Its function is to remunerate the fund's management company for its services. Its is directly levied on the fund's assets. Investors do not need to make additional payments to cover this fee. According to the type of fund, management fees may vary between 0.5% and 2%.