Investing in investment funds

The advantages of investment funds

• Your investments are selected and managed by an experienced fund manager, assisted by a team of specialists. If you invest in a fund, you benefit from their knowledge and expertise. Very convenient for you as an investor.
• Investment funds spread their investments. This means that the value of your investment will fluctuate less than if you’d invested in direct shares of bonds. 
• Some funds allow you to invest in markets or sectors that would be unavailable to you as a private investor. 
• The fees for an investment fund are usually lower than if you were to buy a similar selection of shares or bonds yourself. Investors in funds pay relatively less in transaction fees.

The disadvantages of investment funds

• No matter how much expertise a fund manager has, the returns from an investment fund can always be disappointing. You could lose all or part of your initial investment.
• With an investment fund, the prices and trading opportunities are only updated once a day, not from minute to minute.
• Although investing in an investment fund means a greater spread of your risk, too much in any one type of investment fund can adversely affect your returns. This could apply if you only invest in shares or in one particular sector.
• You do not have any direct influence on the specific investments within the fund. In addition, it’s not always easy to see what your money is being invested in.

ABN AMRO allows you to choose from a large number of investment funds, in various themes, sectors and geographical regions. If sustainability is a priority for you, for example, you can select investment funds that focus on the impact on people, planet or society. You could choose an investment fund in the real estate or technology sector, or for example, a fund that focuses on emerging markets. We have a Fund Selector that helps you to compare and select using filters.

Compare investment funds >

Active and passive funds

The majority of funds that you can invest in through ABN AMRO are active investment funds. The fund manager of an active investment fund selects the investments according to a certain strategy, and tries to generate a higher return than that of the comparable index (the benchmark).

A passive investment fund, also known as an index fund or tracker fund, is a fund that tries to track the performance of a specific stock market index, such as the AEX or Dow Jones. Most ETFs (Exchange Traded Funds) are passive investment funds. The fund managers track the benchmark, trying to achieve roughly the same return as that of the index.

Open and closed end

The difference between open-end and closed-end investment funds relates to the way that these funds issue new fund units (shares in the fund). This difference affects the way that the price of the fund is set and how easily people can join, participate in or leave the fund.

• The manager of an open-end investment fund can issue new fund units (shares in the fund) and redeem existing units at any time. In other words, you can buy and sell whenever you want. 
• With a closed-end investment fund, the investment fund can only issue a limited, pre-set number of fund units. You can only buy fund units from someone who is selling theirs. 

The most important information about an investment fund is contained in a Key Information Document (or KID). This explains the aim, features, risks and fees for the fund in question. Most European investment funds are monitored by the regulators of the European financial markets. A KID is compulsory for these funds. The KID gives you a better idea of the risks of an investment fund and makes it easier to compare funds from different providers. It enables you to form a considered opinion about whether or not to invest in a particular fund. This information is provided in the Fund Selector, in the document entitled PRIIP KID. You’ll find this for every fund under the heading Available documents. You should always read this document before making your first investment in any investment fund.

Every KID has a risk bar which shows you how high the risk of the investment fund is on a scale of 1 to 7. One is the lowest risk, while seven is the highest. The main criterion for calculating the risk is the volatility of the investments within the fund. The faster the prices of the investments rise or fall, the higher the score on the risk bar.

Read more about the Key Information Document >

Among the available documents, you’ll also find the prospectus. This gives more detailed information about the investment fund. Every investment fund is obliged to provide a prospectus. Investment funds are allowed to trade on a financial market, such as a stock exchange, if they have an approved prospectus.

The difference between ETFs and most investment funds is that an ETF tracks a market index, while most investment funds try to outperform that index. This is also referred to as ‘passive investing’ and ‘active investing’ respectively. So you could call an ETF a passive investment fund. Additionally, ETFs are continuously tradeable on the stock market, just like shares are. Investment funds, however, are only tradeable once a day at a set price.

Read more about ETFs