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A fund is a type of investment that starts with a pool of investor capital, deployed by a fund manager according to a set of financial goals, providing access to a very wide range of investment opportunities, both broad and specialised. In short, it enables multiple investors to collectively purchase securities, whilst retaining ownership and control of their shares. As with a listed company, a fund is collectively owned by its shareholders, with a board of directors overseeing the governance and regulatory compliance.
Investors may buy into actively managed funds to gain specialist expertise in a particular asset class/region/sector and where exposure might otherwise be difficult or expensive. They also might not have the time to research and manage the investment themselves, preferring instead to utilise the expertise of a fund manager.
A fund’s specific appeal will be based on its objectives, which could be as simple as exceeding its benchmark, capital appreciation or delivering a regular income. The strategic direction of the fund and its day-to-day running, including the portfolio composition and when stocks are bought and sold, is controlled by a fund manager. They use their specialist knowledge to choose the assets, with each investor owning a portion of the total fund. The investment objective and policy of the fund dictate what the fund manager purchases.
Funds managed actively are those where fund managers use their expertise to manage investment portfolios, usually with the aim of outperforming an agreed benchmark. Advantages of actively managed funds include:
Drawbacks of actively managed funds include higher charges and the possibility of underperforming its benchmark.
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