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The investment funds are Collective Investment Undertakings whose objective is to secure contributions from a variable number of investors (known as participants) and to manage the resulting capital with the aim of obtaining a profit, with a suitable diversification of the risk.

These investment funds can be national (if domiciled in Spain) or international (if domiciled outside Spain).

In particular, all the international funds that we offer here at BBVA, and which you will find on our website, are funds registered in countries of the European Union.

The operation is quite simple. The investor selects a mutual fund and buys shares in it.

What is the net asset value of an investment fund?

This is the result of dividing the fund's net assets by the number of shares outstanding at any given time.

What are the subscription and redemption of an investment fund?

Any investor can buy and sell shares at any time. Buying shares in a mutual fund is called subscription; the sale of shares (either in whole or in part) is known as redemption. To “make it effective,” BBVA offers all the operations involving investment funds from the website, the app or any of our branches.

Therefore, as investors buy and sell shares, the fund's assets go up or down. Additionally, fluctuations in the market value of the fund investment assets can give positive or negative results, which increase or decrease the capital, and therefore the net asset value of the fund also experiences these fluctuations.

It can invest in, among others (based on the assets chosen):

• Fixed-income mutual funds: it invests in fixed-income assets (such as bonds or treasury bills). Its return is lower than an “equity” fund (as is the risk associated with it).
• Equity mutual funds: it invests in variable-income assets (like stocks). In most cases, its returns are higher than the fixed-income funds, but so is its “risk”.
• Mixed-income mutual funds: it invests in fixed- and variable-income assets in varying percentages.

You can also choose from:

• Real estate mutual funds: they invest in securities and financial assets.
• Securities mutual funds: they invest in urban properties (with the main goal of making a profit by renting them).
• Money market mutual funds: they invest, in the short term, in a specific currency, which usually entails little risk and "stable" liquidity.
• Commodity mutual funds: they invest in raw materials such as oil, cotton and/or sugar. They are not common in Spain

What other investment funds are there?

In addition to the investment funds explained in the previous section, there are other types, for example, based on the management of the fund (active, passive or multi-manager) or on the returns achieved (payout or capitalization).

Opening an investment fund, whether national or international, is a good solution to get returns on money you have and are not using. In addition, investing in funds has other advantages, which we explain to you below:

• Diversification: an investment fund allows your money to be spread across different assets, sectors, and/or markets (each with different behaviors). Thus, if one investment results in a loss, it can potentially be offset by gains in others.
  
• Access to practically any market: you can invest in markets that might otherwise be inaccessible if operating individually.
  
• Products suited to your profile: as there is a very wide variety of types of investment funds, it is easier to find products to suit your profile, whether conservative or prepared to take on greater risks.
• Professional management: by investing in investment funds, you will entrust some of your savings to a professional team who will analyze the market to identify opportunities to generate maximum returns for your contributions. In return, and it's important to remember, the investor must pay fees that are detailed in the fund information (always within the legal limits). Management and custodial fees are charged directly to the fund (thereby reducing the fund's value and investor returns), and in some cases, the manager may charge the participant directly for subscription and/or redemption fees.

There are 3 key figures for an investment fund:

• Participant: the person who invests in the investment fund. 
• Management Company: the entity that invests the capital contributed by the shareholders in the various financial assets that make up the fund portfolio (fixed-income, equities, derivatives, bank deposits, etc.). The management company for the fund is responsible for drafting the booklet that gathers all the fund characteristics. 
• Deposit-holding entity: This is the institution that holds the fund assets and assumes control of the management activity, for the benefit of the shareholders.

One of the major advantages of investment funds is how they are taxed. Shareholders in an investment fund will only pay tax when they redeem shares. At that point, a return is generated that, for tax purposes, can be considered a capital gain or loss and must be incorporated into the tax assessment base for savings in the income tax return.

In addition, transfers between funds (which means, in all cases, transferring the investment from a specific mutual fund to a different one) are tax exempt, meaning if you redeem (sell) your shares in a fund and reinvest (buy) in another fund, any potential capital gains are not subject to taxation. There are two expenses that can be deducted: the expenses associated with subscribing and redeeming the shares. Remember that you can see more details about taxation of investment funds here.

In short, mutual funds offer individual investors an appealing option by providing access to otherwise inaccessible markets, letting investors effectively plan their finances by leveraging their tax advantages.

Considering that the profitability of an investment fund is not guaranteed, something you should always keep in mind, it will depend, to a large extent, on the type of fund chosen and, therefore, on the risk assumed (with the choice made). Both, and in all cases, are based on the investor's profile (which will also influence profitability), which may be:

• Conservative: they offer moderate returns with low volatility, meaning the chances are good that the returns will be as expected. They are suitable for investors who prioritize maintaining the value of their investment.
• Aggressive: they aim to generate high returns, but they also expose investors to greater volatility. Because of this, these investment funds are recommended for investors who think of saving "in the long term".
• Moderate: their goal is to let the investor strike a balance between the stability of their investment and the capital growth they can hope to get, hence the risk assumed is “medium”.

How is the yield of an investment fund calculated?

To calculate the yield of an investment fund, you need to divide the amount invested in it by the total number of shares. The result is, as we said at the start of the article, the "net asset value". Next, and introducing the "time factor", the net asset value of the fund at the beginning (subscription date) and at the end (redemption date) must be compared, which will give us a percentage representing the return on the invested amount. 

The "most common" fees of investment funds are:

• Management fee: it is charged by the fund manager to buy and/or sell the assets that make up the fund.
• Deposit fee: it is charged by the bank or the corresponding depository company for "safeguarding" the fund's investments.

Both are charged directly to the investment fund net asset value and thus deducted from it.

• Subscription fee: this is the amount charged, in some cases and in favor of the management company, for buying into a fund.
• Redemption fee: as with the previous one, it can be charged by the management company, in this case, when redeeming the money from the investment fund. 

Both are charged to the investor at the time of the “action” as a percentage of the amount bought or redeemed, and deducted from it.