We know that today we are seeing various changes in banking products, such as deposits. This is why investors are now focusing on managing their money by investing in investment funds.
Investment funds
Are you wondering what investment funds are? They are collections of financial products or securities in which an individual chooses to invest. There are managers who are dedicated to pooling these securities, which then become funds. Below, we'll explain some of the different types of funds available.
Taxes
It's important to understand that investors in these funds don't pay taxes until their shares are redeemed . Simply put, we don't pay taxes until the investment is successful.
The different investment fund holdings play a role in taxing the gains or losses obtained. For tax purposes, capital gains and losses are variations in the value of the taxpayer's assets . The capital gain or loss will be determined by the difference between the subscription value and the redemption value of the holdings.
A major tax advantage of investment funds is that it is not necessary to pay taxes to the tax authorities, at least not until the capital gain becomes valid and effective.
For practical purposes, we can obtain the value of the assets through a simple operation: we subtract the acquisition value from the transfer value. The transfer value consists of the sale price less the expenses and taxes inherent to that sale. In turn, the acquisition value consists of the purchase price plus the expenses and taxes inherent to that purchase.
2015 tax reform
The tax agency has established a limit of 400,000 euros , which takes into account the total addition of capital gains from 2015 onwards consecutively until the agreed limit of 400,000 euros has been reached, instead of applying it individually to each transaction.
There are tax guides and tools available for the 2016 Income Tax Return, which will help you if you have questions about the Income Tax Return and allow you to consult some important aspects about taxes.
If you've ever considered investing money to help with your mutual fund taxation, we'll tell you about it below.
What assets can I invest in?
There are different types of assets in which you can invest your money to generate profits. Let's focus on three of the most important:
• Shares (equities)
The shares are certificates of ownership. If you buy a share, it means that you have a stake in a company or company, or which gives you the right to some things within the company. If the value of the stock goes up, the company may decide to pay shareholders.
However, if there are losses of money, then there will be no payments to the shareholders and the value of the shares may fall. The price of the stock depends on supplies and demand, which in turn are influenced by profitability, and the business prospects of the company.
• Bonds (fixed income)
With a bond, you give money to a company which in return pays you interest and pays you the borrowed amount. The difference between bonds and stocks is that bonds do not give you a stake within the company.
The bonds can be issued by a company, by regional and local authorities such as municipalities, or by the state. They can be short-term or long-term and pay high or low interest rates, depending on the creditworthiness of the debtor and the basic interest rate levels in the capital markets.
Bonds offer greater price stability than stocks, although their price may go up or down depending on changes in the interest rate or the creditworthiness of the debtor. They are recommended for investors who want to receive stable income.
• Real estate
Real estate is responsible for investments in land or buildings. If you are acquiring a building for investment purposes, the common goal is to rent the property for rental income. Generally the rent depends on the location, purpose and condition of the building.
There are other types of assets in which you can invest your money, but these three are the main and most common for investors. These three main assets have different opportunities and risks.
How do mutual funds work?
The underlying principle is simple: a large group of investors uses their money to invest in various assets such as bonds, stocks, and other securities. These investment funds are managed by professional asset management firms and overseen by government regulators. In return for their investments, investors receive assets of value from the management firms. Investors choose from a wide range of investment funds.
Its investment goals and objectives must be described in the fund prospectus so that, together with the assets, the fund is authorized to invest.
How to know the value of the investment?
Simply put, the value of investment fund units is determined each trading day. This is done by adding up the value of all assets held and subtracting the costs associated with administering and managing the investment fund. The resulting value is then divided by the number of fund units or shares, known as the net asset value or unit price.
If what you want is to buy units of an investment fund, you can do it on any trading day called "offer price", which is equivalent to the net asset value, but often includes a premium with it.
If you want to sell the units of your investment fund again, you can do it on any trading day to the denominated "Redemption price". This price is generally equivalent to the net asset value. Also in some cases, it could include a slight discount to the total net asset value.
Advantages of investment funds
- A simple way to make a diversified investment.
- Managed by a financial professional.
- They allow investors to participate in a wide variety of investments.
Investing myths
- Investing takes a long time; Today, the investment world is very accessible to everyone. With the help of technology, information is transmitted almost instantaneously, which helps investors to know new information quickly when there are changes. Investing does not take time, if you are intelligent it will be very easy to know what information may be useful to you and you will be able to invest quickly and easily.
- Investing in the stock market is like gambling; successful investments are not like a game of chance. Investing is about balancing the risk and the returns that can come with investing in certain assets. If you have the skills to be a good investor, you can easily predict the results, based on trends, patterns, and laws of supply and demand.
- Paying a professional is better than making your own investment decisions; Many people pay large amounts of money to have their money managed by a professional investor. The main problem is that not all professional investors are successful in their service, while still getting paid for their efforts.
You have the most powerful tool there is: the internet. Now it is easy to educate yourself with the help of the internet to manage your money in a better way, even better than in a professional way.
- Investing on your own increases the risks; This may be true, if you do not have the necessary education to invest on your own. To balance risk and opportunity, you must be able to create and implement an investment plan. With proper training, investors can reduce risk by securing their returns.
- Investing is as simple as knowing what stocks to buy, of course it is important to know what stocks to buy, but it is not the only thing that is needed to invest successfully. What is also very important is knowing when to sell the stock.
Investing requires intelligence and education, but remember that being an investor does not require a genius.
Conclusion
As you can see, investment funds are based on basic principles and provide easy and professional access to a variety of asset types.
In general, you can invest by buying stocks, bonds, real estate, or other assets directly from a bank broker, asset manager, or real estate agent. You can also buy them indirectly through an investment fund, which is a popular approach used by millions of investors today.
We are facing a tax reform that raises questions about how capital gains generated through investment funds are distributed in income tax returns. I hope this article has helped you understand a little more about the taxation of investment funds.