Updated: Sep 19, 2018
What is a Fund?
A fund is made up of several holdings, that may be corporate bonds; government bonds; emerging markets bonds; convertible bonds; high yield bonds; equities; and also a combination of these securities, normally referred to as a Multi-Asset Fund.
A fund allows investors to pool their money together. The fund manager then invests this sum of money on their behalf in the selected holdings. The type of fund chosen depends on the investor's risk profile and the investor's attitude to risk and return.
Accumulator Fund vs Income Fund
An Accumulator Fund, as the name implies, accumulates the return in the price of the fund - thus the investor does not receive any income but the return is present in the fund’s price.
An Income Fund distributes coupon payments or dividends to its investors. Due to this, it does not increase the fund’s price since it distributes the earnings instead of accumulating them in the price.
Top Reasons to Invest in Funds
Investors can build diversification through their own portfolio of investments, but unfortunately this takes a considerable amount of time and expertise to research, which investors usually don’t have the time to conduct. Thus, a portfolio manager achieves this diversification by selecting the funds that are good performers in the markets on behalf of the investor. Diversification is achieved since a fund holds a basket of investments which can minimize portfolio default risk and volatility. When taking an example of a balanced fund, such a fund would hold a mix of both stocks and bonds, whose respective price fluctuations often cancel out each other thus making the final price of the fund smoother and less volatile.
The holdings which are present in a fund are chosen by professional investment managers based on a rather rigorous investment approach, thus benefiting investors from their professional advice. With a small investment amount, investors can buy a large number of securities at one go through a fund. In terms of liquidity, funds are relatively easy to buy and sell at any given time and are widely available through most investment firms that have a distribution agreement with large international fund houses. The liquidity aspect is considered as a benefit for investors, since should they require their current value of invested assets, they can get it back quickly and easily on a daily basis.