Investment funds are pools of capital from multiple investors that are managed by professional fund managers according to stated investment objectives. There are open-ended and closed-ended funds with different structures. The net asset value (NAV) represents the value per share and funds use dual pricing for buying and selling. Funds are regulated and performance can be evaluated through various metrics.
Basic Concepts of Investment Funds
Investment funds have trustees or custodians as independent oversight parties. Open-ended funds allow assets under management (AUM) to vary as investors subscribe or redeem. They have defined investment rules and limited borrowing powers. Closed-ended funds have fixed units like stocks and can trade at premiums/discounts to NAV. Supervision includes independent auditing.
Various Types of Investment Funds
There are many fund types catering to different investments, including: bond funds holding portfolios of bonds; commodity funds tracking commodities or commodity indices; real estate funds investing in property assets; emerging market funds focusing on developing economies; capital guaranteed funds promising return of principal.
Evaluating Fund Performance
Metrics to evaluate investment fund performance include: the Sharpe ratio measuring return relative to total risk taken; the Treynor ratio using systematic/market risk; Jensen’s alpha quantifying excess return over a benchmark; information ratio assessing risk-adjusted excess return; M-squared similar to Sharpe ratio.
Investment funds provide diversified exposure to various assets for investors. Understanding fund structures, types, and performance evaluation methods allows for informed investing decisions.