Investment Fund: Definitions, Strategies and Examples

If your goal is to run a successful business, educating yourself about the smart use of money and investments should be your number one priority. That is not a piece of knowledge you can get in an easy way. The best way is to observe some of the best strategies and examples from the past, that brought fame and fortune to today’s most recognizable brands. With that in mind, the goal of this article is to talk about definitions, strategies, and examples of an investment fund.

Hopefully, at the end of it, you will have enough knowledge to successfully implement these strategies and help your business grow.

 

The definition of an investment fund

Understanding the definition of an investment fund is a great way to avoid some of the fatal mistakes entrepreneurs make.

If we are to speak in strictly technical terms, an investment fund is a capital that belongs to a number of investors.

They collectively purchase securities of a company, while every investor retains control and ownership of his or her shares.

 

The difference between security and equity

Just to avoid further confusion, while equity represents purchasing part ownership in a company, either by investing or purchasing company shares, security represents a broader group of possibilities.

In general, it includes:

  • bonds
  • banknotes
  • futures
  • stocks
  • swaps
  • options
  • forwards

It is important to understand and distinguish these two terms since they play a crucial role in defining an investment fund.

 

Investment fund strategies

There are four main types of investment funds to analyze:

  • Open-End
  • Closed-End
  • Exchange-Traded Funds
  • Hedge Funds

Analyzing these strategies is one of the best tips for expanding your small business you can get.

Investment Fund Definitions, Strategies and Examples

 

1. Open-End investment strategy

Open-End investment is one of the more common types you will find.

These funds generate a new amount of shares every time an investor invests more money into the funding pool.

In the same manner, he or she loses the ownership of those shares if the funds are pulled away.

 

2. Closed-End investment strategy

This type of investment has more similarities to how stocks work.

You get a fixed number of shares that you can later use for trading on the exchange market.

The entire process depends on the demand and supply of investors.

 

3. Exchange-Traded Funds

Exchange-Traded Funds, also known as ETFs, are closely similar to Closed-End investments.

They represent an alternative to mutual funds, where investors have a bit more flexibility with what they can do.

You can also use them to trade on the exchange market.

Alt: A stock exchange market board.

 

4. Hedge Funds

When talking about hedge funds, you should know that they can be quite useful.

What you can do is make pairs of stocks you believe will drop down with stocks that have a high probability of jumping up.

This is a great way to tackle potential losses and play it safe with your money and assets.

It is also quite common to invest in assets like futures or options.

It is a bit riskier, but it offers greater flexibility.

 

Examples of famous investment funds

Just so you can understand a bit better how large investment funds can get, here are a couple of examples:

  • Pimco Total Return – an investment fund managed by Bill Gross. Assets value is estimated to around 263 billion dollars.
  • Vanguard 500 Index Investor Fund – asset valued at around 111 billion dollars
  • Fidelity Contrafund – focused on the US primarily, this fund is valued at around 81 billion dollars

 

Real estate investment strategies

Investment Fund Definitions, Strategies and Examples

Trading with real estate is a great way to make substantial amounts of money.

When we talk about real estate investment strategies, there is one term that we need to explain – historical return.

To simplify, a historical return is a percentage of return that investors get from the stock market.

Although you might think that the bigger percentage is, the better, that is not the case here.

A higher percentage of historical returns means higher risk.

Four main real estate investment strategies and types of investments to look at are:

  • Core
  • Core+
  • Value-Added
  • Opportunistic

Core and Core+ have a low to moderate level of risk, with the historical return from 7% to 12%.

On another hand, Value-Added and Opportunistic strategies have a moderate to a high level of risk, and they generate 10% of historical returns and above.

 

Core

Core real estate is usually properties in the urban downtown of big cities.

The demand for these properties is high, and the risk of not being able to rent or sell them is low.

Furthermore, the return can be higher than for the rest, simply because people are willing to pay more for a better location.

 

Core+

The difference between Core and Core+ properties is the location.

Core+ properties are located in the suburbs or non-primary metropolitan areas.

The quality is not as high, and it might be a bit more difficult to rent or sell, but the return can be a lot more than for the Core properties.

 

Alt: Dollar bills planted in the ground.

Value-Added

Value-Added strategy for property tradings is a bit riskier, but it can have a high return depending on the situation.

What you do is, you buy a property, get a loan to make improvements, and then sell it at a higher price.

 

Opportunistic

Opportunistic investments involve properties that require major renovations, sometimes even raw land development.

The advantage is that you can get these properties at a lower price.

Once you get them in shape, the percentage you can get back can be astronomical.

However, risk is proportionally high.

 

Evaluating real estate investment strategies

Investment Fund Definitions, Strategies and Examples

Whether it is for business or your personal needs, it is crucial to evaluate real estate investment strategies. For example, a lot of families relocate during a period of one year. That means a lot of jobs both for real estate agents and moving companies. Both industries can benefit from real estate investments.

For example, bluebellmovingandstorage.com invested a lot of money in purchasing properties that were turned to storage space.

Now, these are being rented to the customers, and the company is getting a steady profit return from a one-time investment.

 

Investment funds made easy

I hope that these definitions, strategies, and examples of different types of investment funds gave you enough insight to paint a clear picture.

Knowing these pieces of information will help you learn a bit more about how investment funds work, and what doors they open.

I encourage you to invest a bit more on your own and help both you and your business grow.

Good luck!

Written by

Shristi Patni

Shristi is the Chief Content Officer at Raletta. She enjoys writing about food, fitness, finance and everything in between.