One of the star products of 2017 was investment funds. These included funds of all types, from fixed-income to equity funds, as well as alternative and even mixed funds . There are many reasons to explain these new habits among small and medium-sized Spanish investors. This article will provide you with the necessary insights to understand this shift in the world of finance.
The primary explanation for this situation in investment lies in the lack of returns on the main banking products designed for savings. These include fixed-term deposits, high-yield accounts, promissory notes, and various types of government debt. Returns on savings do not exceed 1%, and are even significantly lower in some cases. This is a reaction to the process of lowering the cost of money , driven by the European Central Bank (ECB), which has brought it to 0%.
A significant portion of the capital from these savings models has been diverted into investment funds over the past year. This has been achieved through very aggressive moves that have led to new investment strategies . It appears that this trend will continue into the new year, with a further increase in investment funds linked to major stock exchanges, not only in Spain but also in other markets around the world.
Accumulation of funds in December
One of the final figures from 2016 is that December became the second-best year on record for the investment fund industry , according to data provided by Imantia Capital. Specifically, it saw an increase of no less than €4.360 billion. This figure indicates growing interest from all types of investors, from the most aggressive to the most moderate, as a result of the many investment funds currently available.
The surge in this financial product over the past few months has become evident. The sector closed 2016 with asset growth of €14.210 billion. In practical terms, this represents a 50% increase compared to the previous year. This marks the fourth consecutive year of growth in capital inflows to these financial products, offering the best margins in recent years.
Regarding the contracted categories, there are news regarding the distribution of capital. Not surprisingly, according to this same source, it indicates that the most demanded funds in this period are short-term fixed income and profitability by objective. Known in the financial fields as buy & hold. While La Caixa repeats as the entity that has managed the largest amounts in 2016. With about 18,5% of the market share. Next, Banco Santander and BBVA, with 15,3% and 13,6%, respectively.
Interestingly, one of the reasons this firm cites to explain this undeniable interest in investment funds is the outcome of the US elections, with Donald Trump's rise to the presidency of one of the world's most powerful economies. The report also highlights that the best-performing categories have been equity-linked funds and mixed equity funds . Conversely, real estate and money market funds have been the least attractive to small and medium-sized investors.
Why this interest in funds?
There are many reasons to explain this shift in the wealth of the many savers who have placed their trust in this unique investment product. One of the most notable, undoubtedly, is the wide range of options available, allowing you to choose the model you prefer, or at least the one that best suits your profile as a retail investor. With countless alternatives —almost as many as there are financial assets in the markets—you can invest in virtually all of them, with few limitations on where your money goes.
Another of its main contributions lies in the fact that it generates greater and more complete investment diversification. This is primarily because it doesn't concentrate on a single financial asset, but rather on several of diverse natures. Within the same financial product, it can combine fixed income with equities , and even with other less conventional alternative components, such as commodities, real estate investment, and even market volatility.
Without ever having to build an investment portfolio yourself. It's designed and managed by financial groups. An added advantage is that you can subscribe to any fund for amounts that are truly affordable for any household budget, starting from just €500 . In some cases, currency hedging is even available to protect your positions.
Terms of stay
The greatest divergence lies in the period for which you should keep your investment fund open. Experts in this product suggest that the most recommended timeframes are medium and long term, with an estimated average of between 3 and 5 years . This is the period in which you can best reap its benefits. In this sense, they behave more like a savings product than an investment product. In any case, their effectiveness for very short periods is very limited due to the inherent characteristics of this product.
In any case, they offer the possibility of transferring funds free of charge to other funds when market conditions are unfavorable. This helps limit losses or at least allows you to take advantage of other, more profitable opportunities to maximize your savings. Ultimately, they offer many options that other financial products cannot due to their unique design mechanisms.
Another situation that you can take advantage of from now on is that you can choose the geographical area where to invest your savings. Comfortably from the same product and formalizing the operation from your home in the vacation destinations. Because of course, another of their contributions is that they can be formalized online. At any time of the day and operating from your usual bank. Without many impediments so that you can fulfill the wishes of subscribing them.
Through index funds
The option to precisely replicate the behavior of a stock market index is also available . This is similar to other investment models that are less closely aligned with these index prices. However, the range of options is significantly smaller, making the choice more difficult. Nevertheless, it's another alternative for investing your money using these more modern formats, which closely resemble direct stock market investment.
Of course, this is another option you have for investing your savings this year. The strategy is very similar to investing your money directly in the stock market, although with one substantial difference: you won't focus on a single stock, but rather on a basket of shares from an entire stock market index —whichever one you choose. In this sense, its parallel with investment funds is much stronger.
Advantages of investing in a fund
There is no doubt that mutual funds have their advantages and disadvantages. On the first, you will find some of them that can be very beneficial for your private pocket. You should keep them in mind if this year you are going to opt for this special financial product. Not in vain, there will be many contributions that will generate you from these moments. And among which the ones that we expose below stand out.
- They are usually a product very easy to understand. It is not complex at all compared to other investment models. With which you can open positions in them without excessive complications.
- You have one wide variety of proposals. Both in equities and fixed income. Even the most original alternatives that you can find right now. You will have no problems meeting your investment demand
- Your liquidity is maximum since you can enter and leave the markets as soon as you want. Without limitations in the movements that you take in any class of investment funds. Although you will have to wait more than a day for its settlement.
- They are intended for all kinds of investors. From the most aggressive to those with a more conservative profile. They exclude practically no one from their positions. Even with very affordable contributions for all households.
- Anyway, its highest performance you can obtain in a medium or long term of permanence. That is, from 2 or 3 years approximately. Never in very short periods
- Any bank you operate with will have a product with these characteristics. Through an offer in which all funds are not included. But only those selected by the entity itself.
- You can subscribe them in other currencies if this is your wish, although you will have more demanding commissions. You can also choose to hedge the currency, in this case the euro, as a strategy to protect your savings more effectively.