Mutual funds: Strategic investment

Mutual funds (FCP) are collective investment vehicles that enable investors to diversify their portfolios by allocating their capital to a variety of financial assets. Understanding how these funds work is essential to optimising returns. These products also provide access to sectors and markets that are sometimes inaccessible to individual investors. 
There are always risks involved in investing, including partial or total loss of capital. It is advisable to seek information and professional advice before making any decisions.

What is a mutual fund? A mutual fund is a collective financial product. It allows several investors to pool their money together to make diversified investments. The main aim of this type of fund is to spread risk by investing in a number of assets such as shares, bonds, debt securities, etc. This allows investors to benefit from the advantages of a diversified portfolio without having to select the securities themselves.

An FCP is managed by a portfolio management company, which defines and applies an investment strategy in line with the fund's objectives. Here are the main steps:

• Investment of units: Investors buy units in the fund, giving them access to a proportional share of the underlying assets.

• Asset management: Managers select and allocate assets to maximise returns and minimise risk.

• Distribution of returns: Profits generated are distributed to unitholders according to their shareholding.

With this model, investors benefit from simplified, professional portfolio management. It is important to emphasise that investing in a mutual fund involves levels of risk, particularly due to fluctuations in the financial markets and the possibility of capital losses.
 

See: What is an investment fund?

Mutual funds come in a number of different categories, each of which meets a variety of investment objectives, including long-term growth, security and sector diversification.

Mutual funds investing in equities

Equity mutual funds are mainly invested in the shares of listed companies. They enable investors to participate in the performance of companies on the financial markets, while diversifying risk by investing in a large number of securities.

FCPs investing in bonds

Bond funds focus on debt securities, such as government or corporate bonds. These funds generally offer greater security than equity funds, but with potentially lower returns.

Risk mutual funds

FCPRs, or Fonds Communs de Placement à Risque, are funds that specialise in investing in young or innovative companies. They are generally riskier, but can offer higher returns. Investing in a FCPR enables you to support high-growth sectors, such as start-ups or companies in the development phase.

Mutual funds and private equity

Mutual funds can incorporate private equity to give retail investors access to unlisted companies. These investments offer high potential returns while being pooled with other assets. This combination makes it possible to diversify the portfolio while reducing the risks associated with traditional markets.

Innovation mutual funds

Innovation mutual funds are financial products that focus on high-growth sectors such as technology, biotechnology or artificial intelligence. These funds offer strong return opportunities, although the risks associated with this type of investment are also higher.

FCPE: company mutual funds

FCPEs, or Fonds Communs de Placement d'Entreprise, are funds dedicated to a company's employees, who can invest in the fund through their company savings plan (PEE). These funds are often made up of shares in the company where the employees work.

Real estate mutual funds

Property investment funds (FII) are another type of FCP, which invest in property, either directly or through listed property companies. These funds are attractive to investors seeking passive income from rental income or property valuation.

Regulatory compliance

Mutual funds are regulated by the relevant authorities and comply with current standards. They follow strict management and transparency rules to protect investors. We recommend that you consult the official documentation for each fund to fully understand its strategy, risks and charges.
 

Investing in a mutual fund offers a number of significant advantages. As well as guaranteeing effective risk spreading, it allows you to draw on professional expertise to maximise returns.

Portfolio diversification

One of the main advantages of a mutual fund is diversification. By investing in several assets through a mutual fund, you reduce the overall risk of your portfolio, because the performance of the assets is not correlated. This limits the negative impact of a fall in a single asset.

Professional management of FCPs

Mutual funds are managed by investment experts who make decisions based on in-depth market analysis. This gives investors access to high-quality portfolio management, without having to spend time selecting the securities themselves.

Accessibility of FCPs

Another advantage of mutual funds is their accessibility. With lower entry tickets, FCPs allow investors of all sizes to participate in diversified investments, which would be more difficult with direct investments in shares or bonds.

Investing in FCPs involves risks. Past performance is no guarantee of future returns. Fluctuations in the financial markets, asset volatility and liquidity risks may affect the value of the investment. 
 

Investing in a mutual fund requires careful thought beforehand, in order to choose the fund that matches your financial objectives. It's essential to consider a number of criteria, such as investment strategy, associated costs and investment horizon.

Choosing the right fund

To choose the right mutual fund, it is important to define your financial objectives, whether you are looking for long-term capital growth or capital preservation. You then need to assess your risk tolerance, as some funds may be more volatile than others. You also need to take into account the investment horizon, the types of underlying assets (equities, bonds, property) and the fund's historical performance, bearing in mind that this is no guarantee of future returns.

Check management fees

Mutual funds charge management fees, which may vary depending on the management company. These fees can reduce returns, so it's important to take them into account when selecting your fund. In general, management fees for a mutual fund vary between 0.5% and 2% of annual assets under management.

Understanding the fund's investment strategies

Each investment fund adopts a specific approach to achieving its financial objectives. Whether the fund is a private equity fund, a property investment fund, a private equity fund or a innovation mutual fund, it is crucial to understand the fund's investment strategy. This will enable you to know exactly where your money will be invested and ensure that the fund's strategy matches your expectations.

There are a number of risks involved in investing in FCPs:

• Market volatility: FCPs are sensitive to fluctuations in the financial markets, which can lead to falls in the value of the investment.

• Liquidity risk: Depending on the fund's composition, some assets may be difficult to sell quickly, which may make it more difficult to withdraw the investment in case of urgent need.

• High management fees: The active management of FCPs may involve significant costs, which reduce net returns for investors.

• Sector and geographical risk: Depending on the fund's strategy, it may be exposed to riskier sectors or geographical areas, which increases uncertainty and fluctuations in performance.

Fund performance may also be influenced by external factors, such as global economic conditions, government decisions, geopolitical events and technological or sector developments. These factors may impact the underlying assets and increase the risks.

Before investing in a mutual fund, you should assess the risks and seek professional advice to make informed decisions.

The tax treatment of mutual funds depends mainly on the income generated by the investments and the tax status of the investor. Gains from dividends or interest are generally subject to income tax, plus social security contributions. Capital gains realised on the sale of units are also taxed, but exemptions or reductions may apply, particularly after a minimum holding period. Finally, the tax regime varies according to the type of fund and the tax jurisdiction of the country of investment, making it essential to understand the specific features of each fund.

This article was produced by Eurazeo Global Investor for information purposes only. It should not be construed as a solicitation or offer of financial products, nor as legal, tax, financial or other advice. Readers are invited to contact their own advisors for any analysis relating to the content of this article. The information presented does not claim to be exhaustive. Accordingly, this document alone should not be relied upon in making an investment decision. Please refer to the legal documentation of the funds mentioned before making any final investment decision.

Past performance is not necessarily indicative, nor a guarantee of future results. Information on past investments is provided solely to illustrate the nature of these investments and the related investment strategy and process. There can be no guarantee that the investments made by the funds will produce comparable results, or that the targeted returns will be achieved. Investing in private equity/private debt funds involves a risk of capital loss and illiquidity.