What are Investment Funds? Types of Investment Funds?
Like the content in the article about the top 10 investment fintech firms in Vietnam, FinFan discussed venture capital funds, which have been investing not only in fintech startups but also the other high-growth potential fields in Vietnam.
But the investment world is not just about venture capital funds. In this article, let’s find out with FinFan the definition of investment funds and types of investment funds.
What are investment funds?
Investment funds or Public funds are the kinds of funds that raise capital from investors for investing in the asset types that comply with defined goals. Just like banks, investment funds have the ability to attract idle cash flow from investors and invest it in some assets with legal value such as stocks, bonds, startup companies, real estate, etc.
To protect the safety of individual investors, investment funds are usually regulated by banks or other competent financial agencies.
The investment fund is managed by experienced financial experts and will be responsible for properly supporting investors in understanding project and market information so that investors can have insights and decisions for themselves.
The fund management company is the unit that manages investment funds, or in other words, the fund management company provides products and services that are investment funds for customers.
Forms of Investment Funds in Vietnam
There are many ways to classify investment funds, the following are the 3 most popular ways:
- Based on the capital mobilization structure
- Closed-end funds
Close-end funds are just one-time released funds, and the fund certificates issuers of these ones don’t repurchase the released fund certificates. Accordingly, these fund certificates will be converted into shares on the stock exchange after the capital mobilization period ends and those companies are listed.
Closed-end fund participants are often strategic shareholders of the company and closely monitor the company for a long time. They decided to join the fund because of their trust in the board of directors and the company's policies.
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- Open-end funds
The opposite of closed-end funds is open-end funds. Close-end funds are public funds, which the funds are managed by companies or organizations. The money raised from investors will be invested in stocks like bonds and shares, or some types of assets by experienced experts and earn profits, then returned to investors.
The open-end fund issuers that will issue fund certificates to investors must be responsible for notifying, explaining, and reporting the status of the fund to individual investors and redeeming the provided fund certificates when due or requested by investors.
- Based on mobilized capital
- Private investment funds
True to its name, this investment fund is often opened by small groups of members who are designated or not pre-designated.
The legal entities of these small groups of members can be individuals or organizations with extremely large capital resources and they can participate in the management and operation of the fund.
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- Collective investment funds
According to Finhay (a well-developed fintech company in the wealth management field) definition, collective investment funds are understood as a form of capital mobilization widely available to small investors as an investment vehicle with the characteristics of ensuring investment diversification, minimizing risk levels, and low investment costs. Investors participating in this fund are usually single individuals or legal entities.
- Based on organizational structure and operations
- Company investment fund
Right from the name, it can be clearly seen that the participant in this fund is a legal entity - a company or enterprise formed according to the provisions of law. A board of directors will be elected by shareholders who are investors. This board of directors is responsible for managing and controlling activities or even changing the fund management company.
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- Contract investment fund
This type of investment fund is not a legal entity. The fund management unit will establish the fund and mobilize capital from individual investors in the market with the aim of earning the most profit from their investment capital.
3 types of popular investment funds
Securities investment funds
Imagine how long it took you to learn stock investment knowledge. After learning all that knowledge about investing, can you easily choose a stock code on the market with more than 1,500 codes listed on the 3 biggest exchanges in Vietnam: UPCOM, HNX, and HOSE?
And yet, that's just stocks, in the stock market there are also other types of assets that can be invested such as bonds and other derivative assets, how can you know when to invest? What type of assets should I invest in and how to divide my investment portfolio appropriately?
Securities investment funds are born to solve this problem. These stock investment funds will divide investment levels according to each investor's taste, ranked in order of their risk appetite. For example, if you are an investor who likes to take more risks and wishes to receive higher returns (over 12%/year), the option for you is to invest in funds whose portfolio is mostly bonds.
Investment and development funds
This form of development investment fund is understood as investing for the purpose of building and developing a specific company, organization, or locality. For example, local agencies set up a fund to call for investment in certain projects and activities.
Venture capital funds
This investment fund's taste is probably high-risk investments in startup companies with the potential to grow quickly in the near future.
Normally, investing in a startup is extremely expensive and requires long-term investment, so most of these funds have very strong financial potential and are very willing to accompany startups in the early stages.
Startup companies are therefore very fond of such investment funds and often receive a lot when these giants decide to enter the phase of exiting the company.
Startup companies therefore really want these investment funds to invest in them and often they receive a lot more than just money when these big guys decide to set foot in until they withdraw from the company.