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What are funds and how can I invest in them?

Expert Nicole Marconi explains what a fund is, how to find the right one for you and why she invests in them.

27 Sep 2021 5 min read
Funds tend to offer simplicity, diversification and transparency when investing.

In the current low interest rate environment, everybody is talking about investment instruments such as equities and investment funds, but there is often no explanation as to what exactly they are and what these terms mean.

Just what exactly is a fund? Is it worth investing in them? And how can you as an investor find the right fund for you? These are the questions I will be answering in this article.

Funds, explained in simple terms

Figuratively speaking, a fund is like a pot where different investors pool their resources together. Fund managers invest the money from this pot under strict criteria and the supervision of external audit firms and, for example, the Swiss Financial Market Supervisory Authority (FINMA).

As an investor, you hold shares whose value depends on the price of the securities in the pot. With most funds you can buy or sell these shares as you like. However, bear in mind that not all funds are the same.

The most important types of funds

Broadly speaking, the various asset classes can be distinguished as follows:

  • Equity funds: here, money is invested in equities. Equity funds usually have a specific focus on industries, regions, countries, market capitalization or areas such as sustainability. Equity funds are considered riskier, but tend to promise a higher return.
  • Bond funds: money in these funds is invested in corporate and/or government bonds. While bonds tend to be considered less risky, this type of fund also presents higher-risk investment options.
  • Investment strategy funds: money in these funds is usually invested in a mix of equities and bonds to reflect different investment strategies and risk levels. In some cases, investments are also made in other asset classes such as commodities or real estate.
  • Real estate funds: as the name suggests, these funds invest money in real estate companies, houses and other real estate funds and plots of land.
Find out more in the article “Investing in real estate as an investor”

Hedge funds are another type, but these differ significantly from those mentioned above, both in terms of their features and the investment opportunities they present.

I don’t like speculation; I’d rather invest my capital sensibly and increase it over time to achieve my financial goals.

Funds can differ not only in terms of asset classes, but also in the way they are managed. “Active” funds are – as the name suggests – actively managed by fund managers and are intended to outperform a particular index, such as the SMI. A “passive” fund, on the other hand, replicates this kind of index and behaves like it in terms of fluctuations and performance.

Why it’s worth investing in a fund and how to find the right one for you

Given the current low interest rate mentioned earlier, savings accounts have generated very little interest for a while now. As such, pensions have failed to increase in value.

That is why it is worth opting for an alternative such as funds. I have personally used a fund account instead of a savings account for years and I transfer my savings to it every month. Funds offer a number of key advantages:

  • Simplicity: you can already invest your money with small amounts. What’s more, you benefit from a fund overseen by fund managers and specialists. All you have to do is choose the fund and the experts will take care of the rest for you.
  • Diversification: funds allow for a broad diversification of investment risks by investing in several different securities. Funds also serve as a reserve in the event of bankruptcy and so provide greater security.
  • Transparency: funds are subject to strict legal regulations. For example, investment companies are required to publish a fund prospectus and at least one annual report.

The reason I invest exclusively in funds is that I don’t like speculation; I’d rather invest my capital sensibly and increase it over time to achieve my financial goals.

In order to find the right fund for you, I suggest that you first define your investment goals:

  • How much risk are you willing and able to take on?
  • How long is your investment horizon and what kind of return are you expecting?

It’s a good idea to answer these questions with a client advisor. That way you can formulate your investment objective clearly and find a fund that will help you achieve it.

Consider social criteria

In conversations, I sense more and more that social criteria play an important role for investors when choosing an investment – especially for women.

ESG (Environmental, Social, Governance) criteria can help you choose funds that take into account the social issues that you consider important. For example, these can be funds that place strong emphasis on sustainability or that prioritize gender diversification in their corporate management.

No matter which fund you choose, we are happy to assist you. You can find more interesting content on the topic of assets on the UBS Women’s Wealth Academy.

Nicole Marconi, CIO Global IM Investment Funds, Head Fund Sales

Nicole Marconi is an investment expert and has been with UBS for 35 years. She spent 10 of these years working in investment fund distribution. For the last two years, she has been responsible for sales in Switzerland and Europe.

Women's Wealth Academy

Women who participate actively in financial decisions early on increase their chances of financial security and worry less about their future.

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