How_Money_Works_-_The_Facts_Visually_Explained

80 81

PROFIT-MAKING AND FINANCIAL INSTITUTIONS

Financial institutions

How it works

Investment companies pool investors’ funds to invest

in different businesses and assets, potentially giving

clients access to markets they could not afford to invest

in alone. Fund managers analyze the market, deciding

when to buy, sell, or hold. They respond to economic

and world news, and try to anticipate movements in

global stock markets to make money for clients.

WARNING

Shares are selected

by company, country, or

sector. The fund may be an

income fund that pays out

dividends on shares, or a capital

growth fund, which aims

to grow the original

sum invested.

The fund manager aims to

spread risk while creating

returns. Fixed income from

interest payments is provided

by bonds that form part of

the investors’ portfolio.

Return

The income and

growth from a fund

is known as the

return. This is the

net amount after

dealing costs, fund

management fees,

and other costs are

deducted. These

are charged to the

fund, regardless of

whether or not the

underlying asset

value has fallen.

AMOUNT RETURNED

TO INVESTORS

❯❯Charges Investing in a fund can

include administrative charges,

management fees, and entry and

exit fees, in addition to the cost of

the units in the fund.

❯❯Performance Despite the fact

that they are actively managed

by professionals, many funds do

not provide a better return than

basic market trackers.

Bonds

Shares

5 %

the maximum amount

of total assets a diversified

investment company can

hold in a single security

according to US law

REINVESTED IN FUND

US_080-081_Investment_companies.indd 81 13/10/2016 16:17