What is an investment fund?
An investment fund is basically a basket of different financial products, such as shares and bonds. Investing in a fund enables you to invest in different companies, regions, currencies, etc., all in one go. Thanks to your investments being spread in this way, you run less risk than if you were to invest in individual shares. At the same time, a professional fund manager constantly adjusts the exact composition of your fund to get you the best return possible.
What are the benefits of investing in investment funds?
Investment funds make investing more accessible, balanced and flexible:
- You don't need to be a stock market expert, as it’s the fund manager who adjusts the composition of the fund to take account of market conditions as and when necessary
- You only need a small amount of money to be able to invest in a wide range of shares, bonds and other financial products
- You limit your risk by putting your eggs in multiple baskets (a loss on one share or bond can be offset by gains in another part of your fund)
- You choose an investment fund according to the level of risk you feel comfortable with
- You can buy and sell units in some funds very easily via KBC Mobile and KBC Touch
What kind of returns do investment funds offer?
An investment fund’s return depends on how well all the individual components perform on the stock market. Before investing, you decide whether you’re mainly interested in aiming for higher returns, or whether you’re more interested in building in sufficient security. Funds that seek to maximise returns usually consist mostly of shares. In turn, funds that are focused mainly on reducing risk hold a higher proportion of cash and bonds.
Another distinction between investment funds concerns the way they treat the income they earn. A dividend fund or distribution fund pays your return directly into your account. That's how you earn an income from your investments. You then decide whether to keep that income, to reinvest it or to use it to buy something.
A capitalisation fund automatically reinvests your returns back into the same investment fund. In good times, this enables your investment to grow annually, and that growth can even be exponential. On the other hand, your returns are not immediately available to you, i.e. to access them, you first have to sell all or some units in your fund.
Sometimes the same fund exists in both variants. The composition is then identical, and you choose whether you prefer to invest in capitalisation shares or dividend shares.
What are the risks and costs associated with investment funds?
Each investment fund is assigned a risk rating from 1 (low) to 7 (high). The higher the risk rating, the higher the possibility that you could lose money you’ve invested (for instance, due to market developments). In addition, depending on the type of fund, you are exposed to other risks such as inflation risk or exchange rate risk. The Key Information Document for each fund sets out all the relevant risks.
The precise costs associated with a fund can also be found in its Key Information Document, which is available on our website and in every KBC Bank branch. These are the various cost components associated with an investment fund:
Entry charges are a one-off cost that you pay when you purchase one or more units of a fund. They are calculated as a percentage of the amount you invest. We use the income from these charges to market the fund, to ensure we meet all legal obligations, to communicate about the fund and to provide you with professional support in your bank branch.
The annual management fee is already factored into the price of your fund, so you don’t have to pay it separately. In return for the management fee, a fund manager makes adjustments to the fund when deemed necessary (for instance, when market conditions change). In an actively managed fund, the fund manager will buy and sell investments, such as shares and/or bonds, in order to effectively spread your risk and to pursue higher returns.
If you’d prefer to manage your portfolio of individual shares and bonds yourself, you won't pay a management fee, but you will have to carry out many transactions to keep your risk spread stable. You will have to pay a fee each time you carry out a transaction, and that can work out more expensive than a fund's management fees. You will also need to have considerable assets at your disposal to put together a diversified portfolio.
You normally don’t pay any exit charges when you sell units of a fund, though there are some exceptions. For example, if you sell fixed-term investment funds before they reach maturity, the exit charges you have to pay compensate for the costs incurred by your fund manager in cashing in your investment sooner than planned. The fund's Key Information Document will always make clear whether or not there are any exit charges.
As with most other investments, you will also pay stock market tax and/or withholding tax on your fund investments. More information in this regard can be found in the fund's Key Information Document, although the tax treatment also depends on your individual circumstances and is subject to change in the future.
Which type of investment fund is best for you?
An equity fund invests only in shares (equities) and a bond fund invests exclusively in bonds. There are also funds that combine different forms of investment. They are referred to as balanced funds.
A strategy fund is one such example of a balanced fund. The composition of these funds follows KBC’s investment strategy and takes account of your risk preference (defensive, dynamic or highly dynamic). A team of specialists continually determines which sectors, countries and themes are the best for you to be invested in, and what proportion of shares, bonds and other asset classes is most suitable for you. You therefore don't have to get involved in the fund in any way at all – everything is taken care of for you.
Fixed-term funds are another type of investment fund. On the maturity date, the fund ceases to exist and investors automatically get their money back. Precisely how much you receive depends on the value of the fund at maturity. These funds often offer something extra, such as capital protection or a guaranteed minimum return at maturity.
Taking your first steps as an investor
If you want to start investing, but would prefer us to do the lion’s share of the work involved, you could join more than 400 000 customers by setting up a KBC Investment Plan te openen. If you’d rather find out a bit more first, call KBC Live or make an appointment at a branch near you.
