Nature of investment funds

An investment fund is an asset made up of the sum of the monetary contributions made by a variable number of people (known as fund holders), which invest in diverse financial instruments (such as bonds, shares, derivatives, currencies...).

• Participations: This is the unit of investment of a fund.
• Management Firm: This firm makes investment decisions and manages and represents the fund.
• Custodian: This firm safeguards the securities and cash that make up the fund assets.
• Net Asset Value: This is the market price or value of each participation, which varies according to the performance of the securities that make up the fund assets, and it is calculated daily by dividing the total assets by the number of participations in circulation at that time.
• Returns: these are calculated as the percentage by which the net asset value varies between the purchase date (subscription) and the redemption rate (sale), and they can be positive or negative, depending on the performance of the net asset value.
• Fees: in return for professional investment management, fund holders pay fees, which are charged directly to the fund (deducted from the net asset value of the fund). These include management and deposit fees. Some funds also charge fees for subscription and/or the redemption of participations.
• Taxation: Tax is not payable until the participations are redeemed.
  For private individual residents, tax is not charged when switching investment funds, only when redeeming participations, charged on any capital gains obtained, attributed as capital gains or losses in the taxable savings base, which means that gains can be offset by losses.
• Benchmark: This is the reference index that measures the market in which an investment funds invests. The majority of funds have one benchmark against which they measure their returns.
• A quartile: All funds trading on the same market are divided into four equal parts according to their returns. The best-performing funds are in the first quartile, and the worst-performing ones are in the fourth quartile.
• VaR (Value at Risk): This is a risk measurement for a fund or portfolio of funds. It indicates the maximum loss your investment can make in a given period, with a level of confidence. It is calculated using statistical data of past performance.
• The Sharpe ratio: This measures the ratio between the Returns and Past Volatility of an Investment Fund. It is calculated by dividing the returns of a fund minus the risk-free interest rate by the volatility or standard deviation of those returns during the same period. The greater this ratio, the better the fund returns in relation to the investment risk.

Investment funds operation:

• Subscription (purchase) of participations.
• Redemption (sale) of participations.
• Transfers between different funds (redemption of an investment fund and immediate subscription to another). Watch out for funds that charge a fee for redemption and/or subscription.

You can carry out these operations through your branch or from the comfort of wherever you are, through phone banking (with the exception of subscription) or electronic banking through your online broker.