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Understanding funds

Do you want to know more about investment funds? Please find below an overview of the subject in a few key points. And if you have any questions, please do not hesitate to contact us!

What is an investment fund?

Investment funds, also known as collective investment schemes, are capital deposits made by investors to be managed jointly on their behalf. The principle is simple: several investors pool their money in this way. These amounts are then invested in various securities, such as shares, bonds, real estate etc. The invested capital is divided into units, which are subscribed by the investors. Investors' needs are met on equal terms. Investment funds are based on a collective investment agreement (fund agreement) that defines the rights and obligations of the investors, the fund management company and the custodian bank.

The various assets are managed by a fund manager. The manager analyses the investment universe and takes the necessary decisions in accordance with the objectives he has defined. These strategies may include, for example, the pursuit of long-term growth, steady high income, capital preservation or a combination of these objectives.

Depending on these objectives, investors' capital is invested in various asset classes, such as equities, bonds or real estate funds.

- Equity funds invest in equity instruments of several companies from different geographical areas, sectors and themes. A broad diversification of equities reduces the risk compared to investing in a single investment. These funds are intended for investors who wish to realise significant capital gains over the long term.

- Bond funds invest in debt securities. Bond buyers provide credit to companies or governments. These funds are intended for investors seeking security and/or a regular return on their investments.

- Real estate funds invest in residential, commercial and industrial buildings and building land. These funds are suitable for investors with long-term return objectives. As a rule, they offer constant returns and higher yields than bonds.

- Asset allocation funds consist of a variable proportion of bonds, equities and cash. It is an effective investment solution for risk diversification. They offer both yield and value-added potential, halfway between bond and equity funds.

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Why invest in an investment fund?

Investing your money in an investment fund offers many advantages.

In the long-term, investors can indeed:

- achieve more attractive returns than with a savings account;

- achieve their financial objectives (pension, real estate purchase, student financing...);

- access sophisticated investments even with small amounts;

- benefit from the management expertise of a team of professionals;

- diversify their assets and therefore better protect themselves against risks;

- participate in the evolution of the real economy by investing in companies that create value;

- reduce investment costs compared to individual management.

Investment funds are very attractive solutions for private investors, as they can benefit from the leverage generated by pooling capital. They also enable private investors to invest in economic sectors and markets that are not easily accessible to them.


With a few hundred francs, euros or dollars, the investor can be exposed to several dozen companies or bond issuers.

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What is diversification?

Everyone knows the saying: "You should not put all your eggs in one basket”. This universal principle applies particularly well to investment funds.

Take the example of a balanced asset allocation fund (consisting of several asset classes) with a net asset value of CHF/EUR/USD 100 (the amount to be invested to obtain a unit in this fund).


You will typically find the following allocation in this type of portfolio:


- 5% in cash


- 50% in bonds issued by several dozen states or companies


- 45% in shares of several hundred companies


Thus, with an investment of CHF/EUR/USD 100, you benefit from a multitude of qualitative sources of performance and returns while reducing the investment risk.

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Are there any risk-free investments?

All investments are subject to risk.


In general, the higher the risk, the higher the potential for profit or loss and the lower the risk, the lower the potential for profit or loss. This is called the risk/return ratio.

Investors seeking a higher return will therefore opt for a more dynamic investment strategy and take more risks. This requires a longer-term investment horizon. A loss in value, even temporary, can be offset over time.


Fund risk is determined by the securities in which the fund may invest. For example, equity funds are more volatile, are subject to stronger price fluctuations and thus carry higher short-term risks but offer higher returns, as illustrated in the following graph:


Source: Thomson Reuters Datastream / BCGE Asset Management

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Is this a good time to invest?

In theory, one should buy when prices are low and sell when prices are high. But in practice, this approach is illusory, as short-term market developments are so unpredictable. Finding an answer to this question is therefore complicated.

However, there are solutions to overcome this problem. For example, if you do not yet have a certain amount of capital to invest, you can regularly invest additional savings through a regular investment in the form of an investment fund savings plan.


Regular monthly investments also stabilise the purchase price movements upwards and downwards and enable you to benefit from the effect of the average price over time.


Ultimately, it is important to remember that the right time to invest is determined by the investor and not by the markets.


For more information, please refer to the section "The virtues of regular investment".

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