Are investment funds safe?

We assess the characteristics of this investment product.
All investments face certain risks. This is a factor that discourages many users from taking the plunge to get the most out of their savings. However, not all financial products are the same, so they do not entail the same level of risk either. Investment funds have characteristics that make them suitable for conservative or inexperienced investors who want to achieve a return on their savings with some guarantees. Additionally, there are also funds focused on long-term investors who can and want to take on certain risks aiming for additional returns. If you are considering investing and wondering whether investment funds are safe, read on.
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How does an investment fund work?

Investment funds are Collective Investment Institutions (CIIs) that comprise contributions from a large number of individuals or participants, who thus obtain shares in them. The fund's assets are invested in accordance with a pre-established investment policy. The managers of this investment portfolio are a team of professionals from the management agent that works under the supervision of a depository institution, which is also responsible for holding investment securities.

The value of the shares, called the net asset value, is calculated and published daily. This is the result of dividing the total equity of the fund into the number of participants, with the duly accrued commission and custodian fees already discounted. Thanks to this information, participants can study the evolution of the fund and choose the best time to purchase (subscription) or sell (redemption).

Why are investment funds safe?

It is undeniable that virtually any investment involves a certain level of risk. But although uncertainty cannot be completely eliminated, investment funds have several characteristics that make them a suitable product for all types of investor. 

  • Presence of professional brokers: the management of the investment in a fund does not depend on the participant, who may lack knowledge on finance. All investment funds have a team of experts who manage the fund professionally. This professional management not only guarantees a sound investment strategy, but also avoids the participant having to make specialized investment decisions.
  • Easy: this financial product does not require a major commitment or knowledge on the part of the participant. The fund's net asset value provides all the information needed to make decisions once the shares have been acquired.
  • Transparency and control: in addition to the daily net asset value, all funds publish a key investor information document (KII). In this way, all the details on the investment policy, fees, liquidity and evolution of the fund are available to any interested parties. Likewise, the management agent's activity is supervised by the depository institution. Beyond this, there is also the Comisión Nacional del Mercado de Valores (CNMV), the official body that supervises investment funds.
  • Diversification: as the fund's assets are collective, the total capital is sufficiently large to be able to appropriately diversify the investment. Normally, a person's individual investment is not sufficiently high to distribute it among shares in different companies or sectors, so the performance of a single company can have major consequences due to over-concentration. However, the portfolio of investment funds is always diversified to reduce the risk.
  • Liquidity: in most cases, funds offer a high degree of liquidity. This characteristic makes these investment products a safe option for small investors who need to have their money available at all times.
  • Conditions of the different types: there are safer types of investment funds with minimal risks. This is the case with monetary funds and fixed-income funds, which invest in assets with little volatility. However, guaranteed funds are the only funds that guarantee repayment of the initial investment as well as, in some cases, a certain return after the established term.
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What risks are there?

Although the impact of the risk involved in investing is mitigated by the characteristics of the fund, the return on the shares is affected by various factors, such as the type of asset and market or currency conditions, which can increase or decrease a fund's net asset value.

Some types of assets are more volatile and, therefore, entail greater risk. However, the constant fluctuations also entail greater potential returns. Fixed-income assets are more stable than equity assets, consequently, funds that invest in the former are usually safer, but have lower returns. The risk-return trade-off is one of the keys to investment: The higher the expected returns, the greater the risk to be assumed.

The volatility of assets largely depends on market conditions, which also represent a significant risk for the investment. Financial markets depend on the economic, political and social situation of the region in which they are located and, increasingly, on other regions, given globalization. Finally, the currencies used by different countries can also gain or lose value, depending on the market situation. This currency appreciation or depreciation may also constitute a risk for investment funds, although many hedge currency risks so the participant is not affected by this variable.

In short, funds cannot completely eliminate the risks associated with any investment, but their characteristics make them a fairly safe product capable of minimizing those risks. At BBVA, we are aware of the advantages of this investment model; this is why we offer our customers a wide variety of funds and other savings products. Check the conditions at or at any BBVA branch, and choose the one that best meets your investment objectives.

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