With investment funds, investors don’t have to put all their eggs in one basket. The assets are spread across a wide range of securities (stocks and/or bonds and other investment instruments) and – depending on the investment focus – across different investment markets and currencies, too. This diversification reduces the overall risk of the investment.
The CISA sets down risk diversification principles that must be observed.
Ensuring a broad diversification of investments – and thus spreading the individual risks – is a core characteristic of investment funds. The Federal Act on Collective Investment Schemes (CISA) also specifies a minimum level of risk distribution. Thanks to the fundamental principle of diversification, there have been virtually no cases of traditional funds suffering a total loss. Put simply, investing in fund units gives you a stake in a “basket” filled with a wide range of different securities. For example, depending on its investment focus a Swiss equity fund will hold shares in variety of companies. In an internationally diversified fund, the individual investments are selected in line with various criteria – sector, country, economic zone, currency, investment style, investment theme – then combined with each other and the investment risks are spread accordingly. To achieve the same diversification with direct investments in equities, bonds or other instruments, retail investors would have to invest much larger sums and would have to continually monitor the corresponding investments. For investors, the advantage of pooling their resources lies in the size of the fund’s assets and the resultant economic muscle and significance on the financial markets.
Investment funds offer easy access to the financial markets.
Fund managers are major investors on the financial markets and thus enjoy better trading conditions than individual small investors, both in terms of the availability of individual investments and pricing and speed of settlement. When it comes to buying stocks and bonds, funds offer welcome support for retail investors. They give investors easy access to all financial markets and are also cheaper than direct investments thanks to the bundling of large volumes.