Everything You Need to Know About Choosing Your Investment Funds

Choosing an investment fund is a big deal and, to make sure you’re picking the right one, we’re going to give you some insight into what they are and where you should invest, right here…

There are lots of things to consider when choosing an investment fund. Since you’ll likely be parting with lots of your hard-earned cash, you need to make sure you pick the right one.

The main considerations you need to make when looking into these funds include what type of investment fund you want to invest in, and what country you want the fund to be in. If you’re looking to invest in an investment fund overseas in the Caymans, for example, it’s a good idea to speak to a Cayman Islands law firm within this sector. This, amongst other considerations, all need to be thought about before you dive right in.

In this post, we’re going to help you make all these decisions. Firstly, we’ll briefly explain what investment funds are, and then touch on the different types you can invest in. We’ll then share a list of the best countries to invest your money in, so let’s take a look…

What are Investment Funds?

Before we get into the different types and countries you can invest in, we’re going to tell you what investment funds are.

Investment funds work on a pool of capital contributed to by different investors which it uses to buy securities. Despite the fund being a pool of different investors’ money, each one retains their own individual shares in the fund.

All the decisions on how the investment fund capital is spent are made by the fund manager who is an expert in the field. The manager decides what shares the fund should hold, how much of them, and when to buy and sell them.

The only decisions individual investors make is what fund they buy into, whether it’s broad and wide-reaching or narrow and specific, and whether it’s a high or low risk fund.

What Are the Main Types of Investment Funds?

Now that we have a vague idea of what investment funds are, we’ll briefly cover the five most common types. These are:

1. Mutual Funds

Mutual funds allow investors to pool all their money into one investment and have a professional manage the fund for them. These investment funds usually buy stocks, bonds, monkey market instruments, short-term debt and other securities, depending on what their objectives are.

There are different types of mutual funds such as money market funds which are low risk, and bond funds which are higher risk. Investors tend to choose mutual funds for their diversification. This is because their investment goes into a range of different industries, their liquidity as investors can redeem their shares at any time, and they are professionally managed.

2. Hedge Funds

These are some of the more popular types of investment funds, especially for overseas investments. These are similar to mutual funds in that they have a pool of money contributed to by multiple investors, all managed by a fund manager.

Hedge funds differ from mutual funds due to them being considered as limited partnerships. Third-party investors, such as pension funds, banks and wealthy investors, are treated as limited partners, with the hedge fund management group serving as the general partner.

Hedge funds have more diverse ways of investing than most investment funds. They came under scrutiny during the last financial crisis for betting against the market and making millions whilst people lost their homes and livelihoods.

3. Exchange-Traded Funds (ETF)

Exchange-traded funds work a little differently to mutual and hedge funds. An ETF is a pool of securities that trade on an exchange, like the stock exchange, and usually contain various types of investments, such as stocks, bonds and commodities.

ETF share prices fluctuate throughout the day as the ETF is bought and sold. This is different from mutual funds which only trade once a day when the market closes. Before you invest in an ETF you should check that it trades internationally, and not just in the country it resides in.

4. Money Market Funds (MMF)

Money market funds are actually a type of mutual fund that only invests in cash and cash equivalent securities. The majority of these investments are short-term and liquid with high credit quality, such as certificates of deposit and other instruments.

Despite not being as safe as cash, MMFs are considered extremely low-risk compared to other investment funds. MMFs tend to generate income (potentially tax-free) but little capital appreciation. Investors should probably use MMFs to store their money temporarily before investing somewhere else, as they are rarely suitable as long-term investments.

5. Equity Funds

On the opposite end of the investment spectrum to money market funds is equity funds. This type of mutual fund typically outperforms safe investments, and can drive real growth for your investment portfolio.

Equity funds deal in good old-fashioned shares, where you own equity stake in a business, hence their name. That said, with high-reward comes high-risk, and people who invest in equity funds have the potential to lose some, or all, of their money.

Where is the Best Place to Invest in One?

So, at this point, we have a decent idea of what investment funds are and the types we can choose. But, the biggest choice you have to make is what country to invest in. They all have their own merits that we’ll go over in this section.

Regulators in the EU and the US have put a lot of effort into closing loopholes to stop profits earned within their borders from moving overseas. This mostly applies to tax havens like the Cayman Islands, but is starting to extend to other low tax subsidiaries, like Singapore, Ireland and the Netherlands.

On top of this, the UK have passed a law requiring investment funds in its overseas territories to publicly register to stop money laundering, corruption and tax evasion taking place. Despite these new laws, the countries mentioned below are still considered good place to invest your money in an investment fund.

The Caribbean

Cayman Islands – The islands have an appealing corporate infrastructure, a stable government, a sophisticated legal system, pro-business policies and no corporate or income tax. All of the government’s money is earned through licensing fees paid by offshore companies.

Bermuda – This British territory has attractive, leveraged, tax policies, a skilled financial services sector, and officials who are friendly to businesses and offshore investment funds. Its most popular sector is insurance and reinsurance, for which it is the third largest centre in the world.

The British Virgin Islands – These islands are the world’s leading offshore incorporation location, with 400,000 companies having their subsidiaries there. They have a highly esteemed financial sector with no corporation tax and have been a go-to haven since the 80s.

Asia

Hong Kong – As one of the world’s leading financial centres that boasts favourable tax policies, Hong Kong has established itself as a favourite amongst corporations and wealthy people. Foreign income earned outside its borders isn’t taxed, and it has resisted pressure to share information about its investment funds and foreign assets.

Macau – This Asian country is best known for its huge gambling industry and has the highest per capita gross domestic product on the planet, according to the International Monetary Fund. Offshore investment funds situated there allow investors to be involved in business on the Chinese mainland and the rest of Southeast Asia.

Europe

The Channel Islands: Jersey and Guernsey – These islands are home to more than $1 trillion in assets and have developed strong internal regulatory structures and offshore financial capabilities. Real estate enterprises and private equity firms make their home there. Also, as most of these offshore destinations boast, they have low taxes.

Switzerland – This country is a long-standing destination for offshore investment funds and is still popular despite the competition from other countries. With a stable government, secure economy and steady currency, you can almost forgive the anti-corruption measures that have chipped away at the confidentiality of funds situated there.

North America

The United States – The US has become a popular location for investment funds over the years, with its offshore services market increasing by 14 percent. Certain states, such as Nevada, Delaware and Montana, have more lenient rules than low tax havens like the Bahamas. As much as the US has tried force other countries to register their funds, it hasn’t applied these rules to itself.

The Middle East

Dubai – Taking a leaf out of Switzerland’s playbook, this country provides a neutral zone and safe harbour in times of economic strife. Politically stable, and with higher levels of privacy than Switzerland, Dubai is the perfect place for an offshore investment fund.

Lebanon – Despite the several political and military shocks it has undergone in the last few decades, Lebanon have a highly effective offshore investment system. Beirut’s offshore sector has grown 12 percent every year for the last decade, likely due to it ignoring international efforts to break down it’s stringent privacy laws.

Deciding Which One is Best for You

In this post, we managed to cover what investment funds are, explain the different types, and share an extensive list of countries you should consider investing in.

The only way to decide which investment fund you’re going to put your money into is to look at the type you’re interested in, decide which country you want to invest in based on their economic stability, privacy laws and strategic location, then pair the two together.

Thank you for reading this post, and good luck with your future investments.

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