What are investment funds?
Investment funds are institutional investors that aim to attract potential investors and use their funds to invest in various financial assets. Investment funds are owned by investors, and not by asset management company. Asset management company is an institution specialized in professional asset management with the aim to achieve highest possible return on investment with the risk considered as acceptable.

Why invest in funds?

  • Investment funds provide higher return than bank savings

  • Asset management companies professionally manage funds, they have personnel and knowledge that continually monitors the market and searches for investment possibilities that will provide high return and increase the value of investment fund. They recognize risk and adopt their strategy accordingly.

  • Investment fund invests in various financial derivatives with the aim of reducing the risk of investment. For example, by buying stock of few different companies investment fund remains exposed only to market or systemic risk while investment fund is almost entirely protected from individual risk related to owning shares of only one company. Let us consider a portfolio that is made of stocks of only 3 companies and the one that includes stock of 50 companies. In case that one firm is facing problems, undiversified portfolio will significantly feel this problem and will have much higher probability to collapse than the larger portfolio.

  • Additional advantage of investment in open investment funds is liquidity as investors have a chance to withdraw their money at any possible moment and sell their share of investment.

What are types of investment funds?

  • Open-end investment funds – represent mutual assets of investors. Investors buy unit of net asset value of the fund and value of investment rises together with the fund. Payment and withdrawal of their units can be asked and expected at any moment.

  • Close-end investment funds offer certain number of shares that are traded on stock markets. Investors (stock buyers) have a return on investment in a case that stock price is rising.

How to choose a fund?
These are few basic tips when choosing a fund to invest:

  • Define your risk and decide how risky your investment should be

  • Determine how long you will not need the funds you are investing

  • Define the aim of your investment and determine your goal, based on this choose your fund. If you are investing with the aim to keep value of your assets then invest in the low risk investment funds.

  • Do a research about market, investment funds and their strategies. Investment funds based on the type of their investment can be stock, bond, mutual or money-market fund. Financial strategy and investment plan of an investment fund determine the risk and financial derivatives that are invested in.

  • Research how successful the funds are by checking their return on investment. Compare their return on investment with the so called risk free investment (saving in a bank) and the return on investment of funds of similar type. Bear in mind that past return on investment does not mean it will continue in the future.

What to invest in?
It all depends on your preference as an investor and the recommendation is a combination of savings in bank, financial derivative and real estate investment. Consider the risk of your investment, recognize the responsibility you have and understand that diversification is the best way to lower the risk of your investment.
The diversification is a simple concept, investment in shares of many companies, real estate or saving in bank lowers your risk and leaves you exposed only to market risk. Research shows that investing in stocks of more than 20 companies the only risk you have to bear is the systemic risk.

For example, investing only in shares of companies from one market sector leaves you exposed to sector related risks.


Društvo za upravljanje investicijskim fondovima PROF-IN d.o.o. Sarajevo
Mehmed Paše Sokolovića 15, Sarajevo
telefon: +387 33 263 300; +387 33 277 270
fax: +387 33 263 302
e-mail: prof-in@prof-in.ba
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