Investing in funds is a common financial management instrument. Investing is a term with several closely related meanings in business management, finance and economics, related to saving or deferring consumption. Investing is the active redirection of resources from being consumer today to creating benefits in the future with the use of assets to earn income or profit.

An investment is a choice by an individual or an organization such as pension funds, after at least some thought, to place or lend money in a vehicle, that is property, stock, securities or bonds, that has sufficiently low risk and provides the possibility of generating returns over a period of time. Exchange traded funds are the most well known of these. Placing or lending money in a vehicle that risks the loss of the principal sum or that has not been thoroughly analyzed is, by definition speculation, not investment.

In finance, investment is the commitment of funds by buying securities or other monetary or paper financial assets in money market funds or capital market funds, or in fairly liquid real assets, such as gold, real estate or collectibles. Valuation is the method for assessing whether a potential investment is worth its price. Returns on investments will follow the risk return spectrum.

A hedge fund is an investment open to a limited range of investor that is permitted by regulators to undertake a wider range of investment and trading activities than other investment funds and pays a performance fee to its investment manager. Each fund has its own strategy which determines the type of investments and the methods of investment it undertakes. Hedge funds, as a class, invest in a broad range of investments including shares, debt and commodities.

A Child Trust Funds is a long term savings or investment account for children in the United Kingdom. The UK Government introduced the Child Trust Fund with the aim of ensuring every child has a savings at the age of 18, helping children get into the habit of saving while teaching them the benefits of saving and helping them understand personal finance. Eligible children receive an initial subscription from the government in the form of a voucher for at least £250.

Managed funds or active management refers to a portfolio management strategy where the manager makes specific investments wit the goal of outperforming an investment benchmark index. Investors or mutual funds that do not aspire to create a return in excess of a benchmark index will often invest in an index fund that replicates as closely as possible the investment weighting and returns of that index. This is called passive management. Active management is the opposite of passive management, because in passive management the manager does not seek to outperform the benchmark index.

A private equity fund is a pooled investment used for making investments in various equity securities according to one of the investment strategies associated with private equity. Private equity funds are typically limited partnerships with a fixed term of ten years often with annual extensions. At inception, institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund of funds. A private equity fund is raised and managed by investment professionals of a specific private equity firm. A single private equity firm will manage a series of distinct private equity funds and will attempt to raise a new fund every three to five years as the previous fund is fully invested.

An exchange traded fund or EFT is an investment vehicle traded on stock exchanges much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most EFT’s track and index such as the S&P 500 or MSCI EAFE. ETS’s may be attractive as investments because of their low costs, tax efficiency and stock like features.

Managing your money can be tricky, but if you know your funds, you should have smooth sailing! Happy trading!

Fund management issues and trends, purpose of investment banking, opportunities and risks. Fund managers, rates of return, investors and pension funds - by conference keynote speaker Patrick Dixon: