Mutual Funds

Mutual Funds: What are they, how they operate, and their relevance in the investment landscape

We will explore what mutual funds are, how they are structured, and some of the different types available to investors. We will also look at why investors use this type of investment and the main risks to consider.

What are investment funds?

Investment funds is the umbrella term used for structures that combine the capital of multiple individuals to build a diversified portfolio of securities. Each investor purchases shares that represent a proportional fraction of the fund’s total assets. In this structure, all investors participate in the results according to the number of shares they hold.

 

Investment funds can be:

• Open‑end funds: where redemptions are made according to investor demand, and the number of shares outstanding is not fixed.
• Closed‑end funds: where redemptions are not made on demand, and the number of shares is fixed. These shares are usually traded on the secondary market.

Within the broader category of investment funds, there are multiple structures, mutual funds being one of the most common.

Whether new to investing or seeking to broaden knowledge, understanding how mutual funds work can provide useful context when evaluating different investment options.

What are Mutual Funds?

Mutual funds are investment vehicles that gather money from multiple investors to form a single pool of assets managed by portfolio managers. This structure provides an accessible way for individuals to begin investing, as it offers exposure to different types of assets, such as stocks, bonds, or other financial instruments selected by the fund’s managers, through a single investment.

By purchasing shares of a mutual fund, the investor gains access to a diversified portfolio in a simple and efficient manner.

How do mutual funds work?

Mutual funds are generally actively managed by an investment team that defines the fund’s strategy and is responsible for selecting, monitoring, and adjusting the investments according to that strategy. The fund’s assets are allocated across different companies, sectors, or securities in line with its stated objectives. The price of the fund, called the Net Asset Value (NAV), represents the value of each share and is calculated daily. All purchase and redemption orders are executed based on this daily price. Before investing in a fund, it is important for investors to consider options that align with their risk profile and financial goals.

 

The structure of a mutual fund includes several essential functions:

• Manager: Responsible for implementing the fund’s investment strategy. The manager selects the assets, monitors performance, and adjusts the portfolio in accordance with the fund’s policy.
• Fund Administrator: Handles the fund’s administrative and operational activities, including NAV calculation and accounting.
• Custodian: The institution responsible for holding and safeguarding the fund’s assets.
• Board of Directors: Oversees the fund and represents the interests of investors.
• Transfer Agent: Responsible for processing purchases and redemptions and maintaining investor records.

Most common types of mutual funds in the market

The following categories are provided for illustrative and educational purposes only. They do not represent recommendations or an approved product list.

 

Equity Funds

Invest mostly in stocks and typically aim for long‑term growth.

• Examples may include but are not limited to: JPM US Value Fund, AB American Growth Portfolio, JPM Japan Equity, Morgan Stanley Global Opportunity Strategy, BlackRock Continental European Flexible Fund

Fixed Income Funds

Invest in bonds to generate interest income and reduce volatility.

• Examples may include but are not limited to: PIMCO US Short-Term Fund, JPM USD Standard Money Market VNAV Fund, Fidelity US Dollar Bond, Morgan Stanley IM Emerging Markets Debt Opportunities Strategy, Lord Abbett Short Duration High Yield Fund, JPM Income Fund.

Balanced Funds

Combine stocks and fixed income for a moderate risk profile.

• Examples may include but are not limited to: BGF Global Allocation, BlackRock Managed Index Portfolios – Defensive, BlackRock Managed Index Portfolios – Moderate, BlackRock Managed Index Portfolios – Growth, Bradesco International Diversification Fund – Conservative, Bradesco International Diversification Fund – Balanced.

Sector Funds

Focus on specific industries and sectors of the economy.

• Examples may include but are not limited to: BGF Sustainable Energy Fund, Fidelity Global Financial Services Fund, AB International Health Care Portfolio, BGF World Technology Fund, Fidelity Global Technology Fund

Money Market Funds

Invest in short‑term instruments and focus on capital preservation and liquidity.

Why mutual funds?

Depending on the fund’s structure and strategy, investors may consider objectives such as:

• Diversification: Allocating investments across different assets, sectors, and regions.
• Professional Management: Managers define a clear strategy, conduct analysis, and make investment decisions on behalf of investors.
• Accessibility: Many funds have relatively low minimum investment amounts, allowing more investors to access a wide range of markets and asset classes
• Potential Returns: Depending on the fund type, investors may earn returns through interest, dividends, or share‑price appreciation.
• Liquidity: Shares can be bought or sold on any business day, always at the fund’s daily price (NAV).
• Convenience: Investors can access multiple asset types through a single product, without needing to manage each investment individually.

However, mutual funds are not risk-free:

Like all investments, mutual funds involve risks that investors should consider before making an investment decision:

• Market Risk: The value of a mutual fund can rise or fall depending on how the overall market performs.
• Interest Rate Risk: When interest rates increase, bond prices tend to fall, which can reduce the value of funds with a large allocation to fixed‑income securities
• No Guarantees: Even if a fund has performed well in the past, that doesn’t ensure similar results in the future. Market conditions, economic factors, and strategy changes can all influence performance.

Current Trends in Mutual Funds

The mutual fund industry continues to evolve as markets, technology, and investor preferences change. Below are some current key trends shaping the industry:

• ESG & Sustainable Investing: ESG funds consider three key areas when choosing companies to invest in. Environmental looks at how a company impacts the environment, such as its energy use or pollution. Social focuses on how it treats people, including employees, customers and communities. Governance examines how management quality, transparency, and ethical practices.
• Technology in Investments: Fund managers are increasingly using artificial intelligence and advanced data analytics to improve decision-making and performance.
• Shifts in Investor Behavior: Recent data shows higher inflows into money market funds, as investors look for safer options during periods of economic uncertainty. In contrast, equity funds have experienced outflows when market conditions become more volatile.

Important questions to ask before investing

1. What are my financial goals?
2. How much risk am I comfortable with?
3. How long do I plan to stay invested?
4. What fees or costs will I be paying?
5. Does this fund fit my values and investment strategy?

Eligible Bradesco Bank clients who wish to explore mutual funds can do so via the Bradesco Investments app, where they can review funds and analyze the options that best align with their individual objectives and risk profiles.

 

Disclaimer

This material is provided for informational and educational purposes only. It is not intended as, and should not be construed to be, a recommendation, offer, or solicitation to buy or sell any security, investment product, or strategy. The examples and descriptions contained herein are illustrative and do not represent specific investment advice. The mutual fund examples provided in this material are for illustrative purposes only and do not constitute investment recommendations. Bradesco Investments may have agreements with certain mutual funds mentioned and could receive compensation in connection with those arrangements

Investing in mutual funds involves risk, including possible loss of principal. Past performance is not indicative of future results. This content is intended for a broad audience and does not consider individual investment objectives, financial circumstances, or needs. Investors should carefully consider their own financial situation, objectives, and risk tolerance before making any investment decision. Investors should review the prospectus and consult with a qualified financial advisor before making any investment decisions.