What is a fund?

An investment fund is a supply of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise and lower investment fees than investors might be able to obtain on their own. Some of the most common types of investment funds include:

  • Alternative Investment Funds
  • Common Stock Funds
  • Money Market Funds

Alternative investment fund:

An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash. Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of the complex natures and limited regulations of the investments. Alternative investments include private equity, hedge funds, managed futures, real estate, commodities and derivatives contracts.

The appeal of AIF is the lack of constraints, which allows skilled portfolio managers to achieve higher returns. The ability to short and employ leverage allows AIFs to potentially make more money than their mutual fund counterparts. The performance fee structure also theoretically aligns the interest of the investors with those of the portfolio managers because managers make the most money when they are achieving high returns for the fund's investors. 

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Common stock Funds:

A mutual fund that invests in the common stock of numerous publicly traded companies. Common stock funds provide investment diversification and offer time savings over researching, buying and selling individual stocks. Common stocks are shares of ownership in a corporation that doesn't confer any special privileges, such as guaranteed dividends or preferred creditor status. Investing in a fund that specializes in common stock can provide cost savings if the fund's loads and management fees are lower than the commissions associated with buying and selling individual stocks.

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Money Market Funds:

A money market fund is an investment whose objective is to earn interest for shareholders while maintaining a net asset value (NAV) of $1 per share. A money market fund’s portfolio is comprised of short-term, or less than one year, securities representing high-quality, liquid debt and monetary instruments. Investors can purchase shares of money market funds trough mutual funds, brokerage firms and banks.

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How many millionaires do you know who become wealthy by investing in savings account? I rest my case
— Robert G. Allen