Factors to choose an investment fund

The factors to choose an investment fund are those variables that must be taken into account to select a profitable investment in a savings instrument such as an investment fund.

An investment fund is equity formed by contributions from investors who invest their capital in order to obtain a return for it. The investment fund will be managed by investment managers who will decide the investment policy to adopt, as well as its distribution and the selection of financial instruments in which to invest.

There are different types of investment funds such as the traditional ones that invest in equityproducts , fixed income , derivatives , Forex , or raw materials trying to improve a reference asset or Benchmark in the market, indexed funds that replicate the behavior of a given index stock exchange, ETFs that are a hybrid between an action and an investment fund, more professional and personalized alternative management funds to the participants, funds directed to individuals such as  hedge fund or free investment funds, the SICAVs with more favorable tax implications or real estate investment funds that invest from homes and garages to industrial structures.

Factors to choose an investment fund

The most important factors in selecting an Investment Fund are the following:

  1. Volume of assets managed.
  2. Reputation and philosophy of the fund manager, managers and depositors of the Fund.
  3. Fund investment policyand fund distribution by sectors and countries.
  4. Morningstar rating.
  5. Credit rating assessment.
  6. Level of portfolio turnover. Active managementvs Passive management . Excessive management can generate significant commissions and, therefore, decrease the profitability of the fund. Many investment managers have negotiated commission retrocessions with the financial institution.
  7. Value the five most important positions in the fund.
  8. Long term profitability. Last 5 years and 10 years if there is track record.
  9. Market beta, tells us how the profitability of an asset varies with respect to the reference market.
  10. Curtosis coefficient, analyzes the degree of concentration of the values ​​that make up a portfolio.
  11. Sharpe Ratio, measures the excess return on the risk-free asset. This ratio is very important.
  12. Benchmark or reference asset.
  13. Liquidityof the portfolio.
  14. Date on which it takes net asset value.
  15. Transparency in the fund information in the information booklet and quarterly reports.
  16. Publication of the net asset value in official economic means.
  17. Management fee, deposit, subscription and refund. In addition, there may be a commission for profit.
  18. Time horizon and risk profile (deserves special mention although it is included in the aforementioned investment policy)

These 18 points do not collect all possible points that could be analyzed from a fund. They would be much more and some of them impossible to analyze or know. However, taking these factors into account and analyzing them in detail, we will be more likely to choose a good quality investment fund.

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