Risks associated with investment funds

See which risks can determine the return on your investment.
The investment funds offer to the savers the opportunity of make profitable your money. Is a way of investment safer for small investors and anyone who not have wide knowledge financial or that, simply, prefer delegate the management in professionals. Nevertheless, no investment is completely exempt from a certain uncertainty and there are a series of risks associated to the investment funds that are important know for choose the better choice according to the needs of the investor.
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Characteristics of investment funds

The investment funds are Institutions of Collective Investment (CII) that work low the monitoring of a depositorycompany, manager also of guard the values, and the administration of a managing entity . The assets of these funds comes of the contributions of individual investors, so-called participants, and divide in shares. The funds are supervised for the Comisión Nacional del Mercado De Valores (CNMV).

To the combine the contributions of a wide participants number, the managing entity has more facility for diversify the portfolio that an investor to particular title that, mostly for an issue of costs, not be able to reply a portfolio thus.

Nevertheless, as any investment, this product financial also is exposed to determined risks, that can classify in six groups.

Types of risks associated to the investment funds

  • Risk of market: that risk that drift of the investment in any asset, that pay contributions in a market and whose quote be biased for different variables external, as the evolution of the economy, the interest rates or the politicalstability. This risk is more accused in determined type of assets, as the equities. As good knows any investor, the stock exchange passes by periods of volatility registration.
  • Liquidity risk. Is possible that an investor meets with restrictions when undo the positions in which has invested. This usually happen when negotiates out of markets organized, in very specific titles with low levels of negotiation. The lack of liquidity can influence in the selling price and therefore condition the profitability of the operation.
  • Risk of currency. Provided that invests in assets expressed in a currency different than the euro, there is the risk of that takes place some fluctuation in the exchange rate . These variations can be motivated for the economic and political conditions of the country specifically, so in a way is a risk derived from that one of market. The effect that these fluctuations have for the shares of an investor always measures with regard to the currency of reference of this, in this case the euro. When happens an assessment or depreciation of the other currency, the value of the fund varies although your assets not have changed your value in euros. Obviously, the way plainer to avoid this risk is choose a fund that only invests in assets expressed in the base currency. Nevertheless, is possible neutralize this risk through strategies with derivatives aimed at cover the currency exchange risk.
  • Credit risk. Last of all, the effects of the credit risk also can be relevant. To the invest in assets of fixed-income, the investment fund acts as borrower before the issuer of the bonds or promissory notes in which is investing. If the company, financial institution or issuing state not can comply with those payments or not it does within the term, this supposes losses for the participants of the investment fund. For avoid this type of situations, there are agencies specialized in assess to these issuers. These apply an evaluation system or rating and publish the results of this analysis, so is an information of major profit for assess the investment policy of the fund in which expects invest.
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  • Country risk. The investment in specific countries, with emerging economies, tends to be more volatile that that investment in developed countries, although also the potential profitability of the first is higher. The extraneous risk of the emerging countries owes to the possibility of that the governments go back unstable or to economies very concentrating on certain sectors. Generally, have increased uncertainty, policy, economic and social.
  • Risk of concentration. Diversify is one of the key for an investment suitable. In a portfolio with few assets, the behavior negative of one of them can generate a very negative impact, as your weight with respect to the total is significant. In a portfolio with many values, the negative impact of one of them dissolves in the behavior means of everyone else.

As can see, there are different risks associated to the investment funds that owe consider before take the decision of invest. BBVA offers all the necessary information on your investment funds, as well as tools that allow compare and simulate your investment for find the one which more adapts to your risk profile. Visit bbva.es or any BBVA branch for receive counseling and choose the investment fund that need.

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