A fund, also known as “Mutual Funds” and/or “Unit Trusts” is a collective investment scheme.

This means that your money is invested with the money of many other investors, hence the name “collective investment”. Some people refer to them as pooled investments, but the main point is that you understand that your money is collected/pooled together with many other investors.

A typical fund will have around $50 million invested within it, although many are far greater or less than this amount. This amount of capital has come from the many investors within fund. A fund manager (or managers) then manages this fund of money on behalf of all investors.

So, why invest into a fund as opposed to investing directly into stocks and shares?

It is widely accepted that funds were born to ease the stock selection process. Before funds existed, most investors had to choose from say 5,000 different stocks that exist from the many different types of listed companies. This represented a huge decision making process as to how to select the best stocks, which was and still is today beyond the capabilities of most investors.

Professional traders and fund managers through their funds take this decision process away from the investor, and invest your money along with the other fund members. They will invest the funds money over a wide range of shares and other securities, which will also lower the overall cost when compared to investing as an individual.

Imagine you have $10,000 to invest, and you buy stocks in three separate companies. If one of those companies under-performs, it will affect a third of your investments. Within a fund, you could have exposure to as many as 150 different stocks; therefore, any one stock under-performing will have little effect on the entire fund.

Fund managers use their skill, knowledge and stock picking experience on behalf of their fund members. In return they can charge an annual management fee for their services as well as in most cases an up front entry fee.

A typical balanced managed fund will compromise

• 5% cash
• 25% fixed interest
• 70% equities

With the equities spread across many markets or regions. Most investors would not have the time or the knowledge to manage a portfolio of shares like this on their own.

The range of funds available today is extremely diverse. As well as the typical balanced managed funds, the following types of funds exist:

• Cash funds
• Fixed interest funds
• Bond funds
• Equity funds
• Country specific funds
• Sector specific funds
• Thematic funds
• Hedge funds
• Commodity funds
• Currency funds
• Index tracker funds
• Capital protected funds
• Property funds

This is only a sample of the types of funds available, without even considering all the different currency options. Although they all fall into one of the following 3 categories:

• Growth funds
• Income funds
• Growth and income funds

It is said that around 38,000 offshore funds exist today, so it would appear that an investor''''s decision making process has come full circle! Instead of pondering over which stocks to buy, investors now have to decide what fund or funds do they invest within?

This is however to the investor''''s advantage. There are now funds available in almost every currency and market in the world. This means that a portfolio of funds can achieve an investor''''s investment objectives, diversification and can considerably reduce the overall cost of investing when compared to directly investing into stocks and bonds.