Do you want to grow your money easily? Investment funds can help, as they aim to make your money grow without you having to manage every movement. Additionally, you can choose different markets depending on the level of risk you can take.

But before investing, it’s important to gather all the necessary information. That’s why, below, we explain what an investment fund is and how it works, as well as the key aspects to consider, types of funds, advantages, and associated risks.

Investment Funds: What They Are, How They Work, Types, and More

What is an Investment Fund?

An investment fund is a financial instrument that pools money from multiple participants (investors) to be managed by a team of industry experts. This capital is invested in different assets with the goal of generating returns based on a defined strategy.

Investors can be individuals or legal entities, and the asset portfolio may include:

• Bonds

• Stocks

• Real estate

• Commodities

This depends on the type of investment fund.

How Does an Investment Fund Work?

Investment funds are managed by a group of experts who make decisions that benefit the participants.

The process begins when investors contribute money to the fund. By doing so, they receive the right to a proportional share of the returns, as well as the risks.

The fund managers analyze the market and decide which financial assets to invest in, according to the fund’s strategy.

Then, the collected capital from multiple participants is distributed across various assets to minimize risk and maximize gains.

It is important to note that the value of these participations fluctuates depending on the fund’s performance and market conditions.

Are Investment Funds Savings Instruments?

Yes, an investment fund can be considered a savings instrument. Why? Because it allows participants to deposit their money and accumulate benefits over time.

By making these contributions, each investor receives shares that represent their proportion within the fund.

The popularity of investment funds lies in their ability to provide professional management for asset diversification. This makes them an attractive option for both individuals and companies.

What Types of Investment Funds Exist?

These instruments can be classified into various categories in Mexico, depending on strategy, liquidity, and risk level.

Here are some of the most common ones:

Fixed-Income Funds

Capital is invested in bonds and other debt instruments, such as government-issued loans used for financing. This is a common option for those seeking low risk and stability in their investment.

Equity Funds

These are primarily invested in company stocks. The money is used to buy small shares in different companies, such as Apple, Tesla, or NVIDIA.

Mixed Funds

These combine the two previous types (stocks and bonds) to balance risk and profitability. For example, the capital may be allocated 60% to bonds and 40% to stocks.

Commodity Funds

These allow for diversification and protection against inflation or economic uncertainty, as the money is invested in natural resources such as gold, oil, or metals.

Debt Instrument Funds

Their portfolio consists of financial assets representing third-party debt. These may include government or corporate bonds, promissory notes, or securitized loans.

Index Funds

This is a passive investment option designed to mirror the performance of a set of stocks in the market, such as the S&P 500.

Instead of actively selecting stocks, they buy all (or most) of the stocks that make up the index, aiming to have their value rise or fall along with the index they are tracking.

Some of the Best Investment Funds in Mexico:

• FT-LIQU BF1, managed by Franklin Templeton.

• HSBCMEX and HSBCDMP, managed by HSBC Asset Management México.

• GBM, managed by GBM Administradora de Activos, S.A.

You can compare different funds based on your objectives and risk profile using CONDUSEF's Investment Fund Simulator.

Advantages of Investment Funds

Now that we’ve covered what an investment fund is and how it works, let’s talk about its advantages:

• Diversification. Investing in multiple assets reduces the negative impact of potential losses in a single investment.

• Professional Management. Investment funds are managed by specialists who analyze the market and make strategic decisions to maximize returns.

• Accessibility. Investors gain access to markets that would otherwise be difficult to operate individually.

• Liquidity. In most cases, you can buy or sell shares easily, depending on the type of fund.

• Options for Different Profiles. There are funds with various risk levels and strategies.

• Lower Costs Compared to Individual Investments. Pooling money from multiple people means lower transaction and management costs compared to investing in multiple assets individually.

• Automatic Reinvestment. Many funds allow reinvesting dividends or earned profits, increasing long-term profitability.

Additionally, investment funds in Mexico are regulated by the National Banking and Securities Commission (CNBV).

What Are the Risks of Investment Funds?

Although they have attractive benefits, investment funds also come with certain risks, some more than others. However, in general, you should consider:

Potential Capital Loss

Investment fund performance is not guaranteed. Not only does it depend on manager decisions, but also on the unpredictable nature of the market.

Supply and demand, economic policies, interest rates, and even currency devaluation can cause losses.

Diversification Can Limit Gains

Although diversification helps reduce risk, it can also limit profit potential. For example, if a stock significantly increases in value, its effect on the total profitability of the fund may be lower due to capital distribution across multiple assets.

Key Considerations Before Investing in a Fund

If you’re considering investing in funds but haven’t done so before, consider these key points:

• Goals. Define what you want to achieve with your investment. Are you saving for a house? Retirement? A long vacation? This will help you choose the right fund.

• Timeframe. Determine when you expect to reach your goals. There are short, medium, and long-term funds, but you should select one that aligns with your objective.

• Risk Tolerance. Analyze how much risk you’re willing to take. If you prefer stability, choose conservative funds; if you seek higher returns and accept more risk, opt for more aggressive ones.

The best investment funds are those that generate high returns and align with these three points. However, seeking professional advice may be necessary to choose one that won’t harm your finances.

Pay Attention to Fees

Fees are a key difference among investment funds and can impact the final returns.

Commissions on a BBVA mutual fund, for example, include:

• Subscription fees

• Redemption fees

• Management fees

• Performance and custody fees

However, each fund has different fees, and not all apply or have the same percentages. So, reviewing these costs is essential when selecting an investment fund.

Myths About Investment Funds

• When you invest in a fund, you own its assets. You actually buy shares of the fund, but you do not directly own the stocks or bonds in which you invest.

• Investing in funds is the same as buying stocks. They are two different things. Funds diversify the investment across multiple assets, while buying stocks involves investing in a single company.

• You need a lot of money to invest in funds. Many funds allow you to invest in low amounts, which is what makes them accessible to different types of investors.

• Mutual funds are only for stocks. As mentioned in the types, there are a variety of assets in which to invest in addition to stocks.

• You need to be an investment expert. The funds are not managed on your own, but by a team of professionals, which allows you to invest without advanced knowledge.

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