There are two separate classes of investment funds: open-end investment funds and closed-end investment funds.
Open-end investment funds allow the continuous issue and redemption of fund units, while, for closed-end investment funds, the issue and redemption of fund units is discontinuous, i.e. there are certain periods when investments can be made in such funds or when they can be redeemed.
Investment funds operate with the fund unit concept representing the unit division of the investment fund. A fund unit is equal to the net asset value of the investment fund, divided to the number of circulated fund units on a specific date. For open-end investment funds, the fund unit value is calculated daily. Therefore, the fund unit price varies according to the performance of the instruments which the fund invests in.
Practically, the investors’ money is collected in a single “bank basket” representing the resources of the fund and they are invested in stocks, bonds, bank deposits, currency, etc. The main advantage is that a small amount can be invested, that, cumulated with the money of other investors, has higher investment power.
In order to become an investor, it is necessary to buy a fund unit, a unit consisting of a complex portfolio of financial instruments, respectively stocks, foreign currency, bank deposits, etc. Therefore, on the procurement of a unit, the investor becomes a holder of a complex financial instrument portfolio according to the selected investment fund.