What Is an Investment Fund?

An investment fund is a collective investment scheme that pools money from multiple investors—individuals or institutions—to invest in a variety of assets. These funds are managed by professional fund managers who make investment decisions on behalf of the investors.

How Investment Funds Work

• Investors contribute capital to the fund.
• Fund managers use this pooled money to buy a range of assets (e.g., stocks, bonds, real estate).
• The fund’s value reflects the combined performance of these assets.
• Profits are distributed to investors based on the size of their investment.

🧱 Why Funds Matter

Whether you're starting with R100 or planning long-term wealth, funds offer a smart way to invest without needing to pick individual stocks.

Funds are ideal for:

• Beginners: Professionals handle the decisions.
• Passive investors: No need to monitor the market daily.
• Diversification seekers: Spread your risk across many assets.
• Budget-conscious investors: Access diversified portfolios with small amounts.

Example: You have R150 and want exposure to the JSE Top 40. Buying all 40 shares individually would be expensive and time-consuming. Instead, you can invest in the Satrix Top 40 ETF (STX40). One unit costs around R106 and gives you exposure to all 40 companies. Over time, you can buy more units and receive quarterly distributions.

🚗 Types of Investment Funds

Think of fund types like vehicles—some are buses (unit trusts), some are taxis (ETFs), and some are luxury sedans (hedge funds). All get you to your financial destination, but with different costs, speeds, and comfort levels.

🧰 Unit Trusts (Collective Investment Schemes)

• Actively managed by professionals.
• Priced daily, weekly, or monthly.
• Accessible via platforms like Allan Gray, Coronation, or EasyEquities.
• Investors buy "units" (participatory interests).

Benefits:

• Beat inflation
• Daily liquidity
• Lump sum or monthly contributions
• Global access
• Professional management

Considerations:

• Upfront fees (~5%)
• Limited to regulated asset types
• Switching too often can harm returns

Classification (ASISA):

• Tier 1: Geographic focus (e.g., South Africa, Global)
• Tier 2: Asset type (e.g., equity, multi-asset)
• Tier 3: Strategy and style

📈 Exchange-Traded Funds (ETFs)

• Trade on stock exchanges like shares.
• Price reflects the value of underlying assets.

Types:

• Passive ETFs: Track an index (e.g., STX40, MSCI World, Gold ETFs).
• Actively Managed ETFs (AMETFs): Fund managers aim to outperform a benchmark (e.g., ARKK, FMAG).

ETNs: Debt instruments that track a benchmark, issued by banks.

💸 Money Market Funds

• Invest in low-risk, short-term debt instruments.
• Ideal for parking cash.

🏘️ REITs (Real Estate Investment Trusts)

• Invest in property portfolios.
• Offer exposure to real estate without owning physical property.

🧠 Hedge Funds

• Use advanced strategies.
• Suitable for experienced investors.

🏢 Private Equity Funds

• Invest in unlisted companies.
• Typically for high-net-worth individuals.

🧺 Other Investment Alternatives

Managed Portfolios

• Professionally managed accounts.
• Can be discretionary or nondiscretionary.
• Higher fees, but tailored to your goals.

EasyEquities Baskets

• Thematic or expert-curated share collections.
• You can remove shares you dislike.
• Rebalances automatically.

EasyEquities Bundles

• Managed by third-party asset managers.
• You can exclude shares, but not pick them individually.
• Slightly higher fees due to active management.

Structured Products

• Pre-packaged investments with capital protection.
• Often require large minimum investments.
• Suitable for long-term, risk-managed strategies.

Linked Products (LISPs)

• Platforms that offer access to multiple CISs.
• Flexible switching, broad diversification.
• May involve layered fees and complexity.

Investment Trusts

• Closed-ended companies listed on the JSE.
• Can borrow money and invest in listed/unlisted securities.
• Less regulated, more flexible—but riskier.

Multimanager Funds

• Combine multiple managers or strategies.
• Types include:
  • Multimanager CIS
  • Fund of Funds
  • Wrap Funds

📄 Minimum Disclosure Documents (MDDs)

Before investing, always review the fund’s MDD (also called a fund fact sheet). Key sections to focus on:

• Fund Objective: Does it match your goals?
• Risk Profile: Can you handle the volatility?
• Total Investment Charge (TIC): Are the fees justified?
• Performance Data: How has it performed over time?
• Benchmark: Is it outperforming its index?
• Top Holdings & Asset Allocation: Where is your money going?

🧭 How to Choose the Right Fund

• Cost: Look at fees and charges.
• Risk: Match the fund’s risk to your comfort level.
• Type:
  • Want low fees and flexibility? → ETFs
  • Prefer professional management? → Unit Trusts
  • Want themed exposure with guidance? → EasyEquities Bundles
• Diversification: Mix funds across asset classes and geographies.

🎯 Weekly Challenge

1. Find 3 ETFs trading on the JSE:
   • One South African
   • One Worldwide
   • One Global
2. Read the fund fact sheet for each.
3. Ask yourself:
   • Does this align with my goals?
   • How risky is it?
   • What’s the Total Investment Charge?
   • What are the underlying asset classes?
4. Track their performance over the next month.

🏁 Final Thoughts: Empowered Investing

Investment funds simplify the journey to financial freedom. They offer diversification, professional management, and accessibility—even if you're starting small. Whether you're a student, a side-hustler, or a future mogul, understanding how funds work gives you the power to invest wisely and confidently.