A wide variety
When you invest in an investment fund, you buy a portion of a fund, which is a share. Each fund has its own objective, as well as a specific strategy, composition and level of risk. It is therefore important to read the prospectus of the fund that interests you to understand its specific characteristics.
Nonetheless, whether they are income, security or growth oriented, they all aim to diversify your portfolio.
Different forms of investment funds
Investment funds come in different forms. Here is a list of the main forms of existing funds:
As the name suggests, equity funds are stock. There are Canadian equity funds, consisting of common and preferred shares of Canadian companies. In the market, there are also funds with stocks of well-established or growing US companies.
As for international equity funds, they consist of shares of companies listed on the stock exchange in the main industrialized countries and some emerging countries. In the latter two cases, the exchange rate obviously affects returns.
In general, equity funds are better suited to a profile that has a greater tolerance for risk. Their inherent diversification also has the advantage of being exposed to different markets, particularly with respect to US equity funds and emerging market funds.
Fixed income funds, for their part, offer a regular income from interest or dividends, while preserving capital. They generally consist of debt securities such as bonds or debentures, or preferred shares of companies that pay regular dividends. Their returns are relatively modest, but fixed income funds provide stable inflows and are low to medium risk.
Balanced funds combine the purchase of common and preferred shares of Canadian and international companies, debt securities and money market instruments. Investment diversification gives them a certain stability of return and gives them a moderate risk.
Examples of short-term debt securities issued by governments (such as treasury bills) or by corporations, as well as short-term bonds, money market funds generate fixed, secure yields, but little high. They have the advantage of securing capital or sheltering cash while waiting for another type of investment.
Specialized funds aim to invest in a specific industry (precious metals, technology, etc.) or in certain regions of the world through corporate equities. They have a fairly high level of risk related to the market or currency fluctuations. Lack of geographic or sectoral diversification, as well as political turmoil, can also limit their performance.
Index funds are investments that replicate the performance of a specific index, such as a stock market index, and evolve as it rises and falls. Risk and return are therefore closely related to the chosen index.