What is an investment fund
How not to lose money, but to save it? In economically developed countries this question has been already solved. Most American and European families spend a part of the earned money on acquisition of securities, precious metals, other profitable assets, creating personal investment portfolio and managing it through the financial attorneys of the family.
For Ukraine this instrument of money saving is yet relatively new and not always available for everybody. In fact not every owner of business or simply well-off man knows how, where and when he can turn from a businessman or inhabitant into Investor.
On a way to Europe, Ukraine more and more uses gained economic experience of the developed countries.
Therefore, for greater availability of equity market to private investors the Law «On the joint investment institutions (unit and corporate funds)» was approved in 2001. With its approval, market development of the joint investing into investment funds has begun in a country.
What is the joint investment institution and how to use it for achievement of financial successes?
The joint investment institution (JII) is a corporate or unit investment fund, which carries out activity on unification of moneys of investors with the purpose to obtain income from investment in securities, corporate rights, real estate and other assets.
Becoming a participant (stockholder) of the investment fund, simultaneously You become a mediated owner of the part of assets of the Ukrainian enterprises, real estate, other assets. Your profit increases proportionally to the growth of cost of these assets.
Depending on type of the fund, purpose of its creation and investment declaration accepted by the fund, structure of its assets and their ratio can be different (Classification of investment funds):
- real estate, including land;
- shares of the Ukrainian and foreign issuers;
- debt securities of the Ukrainian enterprises (bonds, bills of exchange);
- government securities;
- direct investments (authorized capital stock) of different enterprises, including re-created enterprises;
- bank deposits;
- precious metals .
An investment fund can be private, in other words to carry out placement of its securities among a circle of persons or one person determined beforehand. A structure of assets of such funds completely corresponds to the policy and investment tactic of participants of such a fund and can be acceptable for them as a risk.
Funds which are oriented to a wide circle of persons, i.e. public, have normative limitations of the structure of their assets. Purpose of such limitations is a decrease of risks of the losses.
Presently the basic direction of investments of public investment funds is the equity market and, first of all, shares of the Ukrainian enterprises.
Buying shares of the enterprises, we acquire a part of their assets. The Ukrainian enterprises grow and develop (volumes of their sales increase, investments in production funds increase, manufacturing technologies are updated, the Ukrainian products become competitive in the world market), and so, cost of the Ukrainian enterprises and their shares grows.
Along with a liquidity of the existing equity market and considerable volumes of auctions in the stock market, potential of the Ukrainian stock market is still great. An equity market is attractive for investors.
Mainly underestimation of assets is inherent to the companies of the second and third echelon that is attractive for investment in their shares for a long term.
On the other hand, the market of shares of companies of the first echelon has a considerable volotility promoting to the execution of medium-term trade operations with such securities.
Investments in the shares of the Ukrainian enterprises are such instrument which can give an opportunity to be ahead of inflation and to turn your money into capital.
It is indicative that the yield of assets professionally controlled in the equity market exceeds the sizes of interest rates on bank deposits. Investment funds show the yield of investments of their investors in several times exceeding the yield, proposed by the banking system.
Besides, the Investment Fund is the clearest financial instrument, as its activity is under the strict control of the State.
So, you’ve made sure that the enterprise stocks and other securities would let you capitalize your means.
But enterprise stocks and other securities purchasing is still an open question. Where and how can be Ukrainian Enterprises stocks (issuers) be bought? Which of them are the most steady and profitable? How much money should be invested in stock? How the situation at the market can be traced? When can one’s stocks be bought or sold? What is the right way to manage them properly?
The main problem for the beginning investor is the choice between investing without any assistance or by means of the investment fund.
While making your choice you ought to take into consideration that if you are going to make investments at the stock markets by yourself you’ll need special skills and knowledge, and the results of the work at those markets depends directly on the correct investment decisions and a skill level of the investor.
You will also meet substantial expenses for creating substructure (investment accounting and storage, a point-of-sale terminal, an auditor), and the questions will arise: where such companies can be found, how one can work with them and so on.
You’ll be answered by the professionals — people from Asset Management Company, which manage its assets in accordance with the legal requirement on the basis of the State Committee License dealing with securities and stock market and also on the basis of the agreement with the Investment Fund.
What are the advantages of the investing by means of the Investment Fund?
When you become a participant of the Investment Fund, you can use the service of people from Asset Management Company which means:
- You won’t have to enter into details as to the quotations, indexes and other facts concerning stock market, i.e. to divert your attention away from your business, there would be no risk that you leave your business.
- There will be no need to create the substructure, which is essential at the stock market.
- There will be no need to study the situation at the real estate markets, land or gold markets, to analyze and compare interest rates and reliability of banks all the time.
- There will be no need to make decisions as to buying or selling your stocks or other assets every day or even every hour.
All this will be done by the professionals – Asset Management Company.
Professional stock managers are making decisions optimal for the «risk-profitability» correlation.
After entering the Investment Fund, you will get the right to have complete information as to the Fund’s activity, as to the structure and cost of its assets and as to your income increase.
Protection of rights of investors is provided with the tight control from the side of the state, Commission on securities and stock market (normative support, registration functions, analysis and control of funds accounting, regular verifications of the AM activity).
Infrastructure of funds (which except the asset management, includes obligatory presence of saver of assets, valuator and auditor) eliminates possibility of manipulation by estimation of net assets value of the fund (Infrastructure of investment funds). Saver of assets of the fund, valuator and auditor, each individually, are obliged to operate exceptionally for the sake of investors of the fund.
In addition, Investors themselves control activity of the company management through the Supervisory Board and General meeting of stockholders, and have the right to replace the assets management company, if it does not meet their requirements.
We should also pay attention to the privileges on taxation of both legal entities and private investors at participation in the Investment fund, provided by the current tax legislation (Taxation).
You have analyzed all existing information and decided to become an Investor. The main question of the agenda – where you can purchase shares of the Investment fund?
The answer is obtained from the same information: Shares can be purchased, after addressing to the asset management company, which manages the fund you have chosen.
Asset Management Company (AM) is a company, carrying out professional activity on asset management of investment funds on the grounds of the license of the State commission on securities and stock market.
Moreover, AMC is a team of professionals, having a considerable practical experience in the field of investment and necessary infrastructure.
Functions of company on the asset management:
- Creation of investment fund (registration in the Single state register of the joint investment institutions, registration of issue of investment certificates, shares of investment funds).
- Placing of investment certificates, shares of investment funds; involving of agents, who place securities of investment funds among investors.
- Carrying out of buy-out from investors of the fund of securities, belonging to them.
- Dividend payment (bringing of offers on payment) to investors of the fund on securities of the fund, belonging to them.
- Organization of the secondary equity market of the investment fund.
- Organization of advertising campaign of investment funds.
- Development of investment policy of funds (investment declaration).
- Asset management of investment funds (after moneys of investors enter account of the investment fund, a company sends them for forming of the structure of assets of the investment fund), which includes:
- analysis of assets, in which it is planned to make investments;
- carrying out of calculations of investments risks;
- making of investment decisions, purchase and sale of assets;
- realization of monitoring for change of investments cost.
- Carrying out of calculations of the cost of assets of the fund, their yield, current value of investment certificates (shares) of the fund.
- Keeping records of assets and obligations of the fund, maintenance of current activity of the fund.
- Provision of accounting on the results of activity of the fund to the State commission on securities and stock market.
- Provision of the report to the Supervisory Board (To the General meeting of stockholders) of the fund about made investments, expenses of the fund, obtained yield.
- Representation of interests of the fund in relations with public authorities, legal entities and individual persons.
Choosing a fund for investing, first of all, you choose a management company and funds, which are in its management.