What is an investment fund?
Investment funds are professionally managed investment instruments. They are designed for medium to long-term asset growth and investment, i.e. they are not out-and-out financing or savings instruments. Diversification, in other words the broad spreading of investments and thus individual risks, is the essential feature of investment funds.
Like stocks and bonds, funds are subject to smaller or larger fluctuations in value depending on their investment focus. However, a fund’s assets do not appear on the balance sheet of the fund provider. Should the latter go bankrupt, the fund’s investors are protected. Investment funds are segregated pools of assets, i.e. the fund’s assets are legally segregated in favor of the investors. Investment funds are not, as a rule, subject to the so-called issuer or counterparty risk inherent in other forms of investment (e.g. in the case of bonds or structured products).
A look back through history
The investment fund business in Switzerland has its origins at the beginning of the 20th century. The idea behind investment funds is much older, however, and stems from periods of pronounced financial crisis. The original intention of the founders of the first funds was to develop a collective but at the same time simple form of investment for interested citizens that would offer them the same advantageous basic conditions in dealing with money inherently enjoyed by large investors. The key facets in this regard are the volume of investment assets and the unrestricted access to investment expertise and experience.
Originally designed for small investors, there are now funds for all sorts of investors, covering every conceivable investment need. In terms of their character, funds have over the course of time moved further and further away from their initial function focused purely on protection. Although funds are still broadly diversified and professionally managed, they are now also used as portfolio components as well as in global asset management. Global investments can be spread and managed better with funds, and switches can be made more quickly and more cost-efficiently. This means changes on the financial markets can be tracked faster.
No 100% protection against losses
Funds are investment instruments. Anyone who buys funds is exposed to investment risks. Despite the statutory protection, these risks cannot be eliminated. There is therefore no such thing as total protection from losses in value, even for fund investors. Funds are subject to the developments on the financial and currency markets. However, if a fund does not meet and investor’s personal return expectations, they can withdraw their investment at any time.