Chapter 14
INVESTMENT FUNDS
INTRODUCTION
The investment funds constitute saving mechanisms, that date from the first half of the XVIII century in Holland with the name of "Administrate Kantooren" organizations whose objective was to administer the deposits of groups of people who invested their money with the purpose of obtaining benefits for the members of the fund; the investors received special certificates that credited them with the right to receive any gained yield by the fund.
Some authors think that the Kantooren does not represent exactly a real antecedent of the investment funds because they did not diversify the investments. By the previous statement, it has taken itself as a precursor of the present funds of investment to the "created as trusts of investment" in Belgium by Guillermo I in 1822, an organism that has diversified their investments.
They appear later and they acquire an enormous force in Great Britain thus: "London Financial Association" and the "International Financial Society". In Scotland, 1873 appears the "Scottish American Investment Trust". In 1924 it appears in the United States, perfect forms of different funds, like those of open type (variable equity and immediate liquidity of its units).
At the present time, investment funds work in almost all Western Europe, Great Britain, France, Luxembourg, Austria, Sweden, Portugal, Norway, Belgium, Germany, Denmark among others. Some societies of European investment have characterized themselves because their investments are oriented totally to the purchase of North American corporate shares and because its administration operates through banks.
In Latin America the funds or societies of investment burst, in 1956 in Argentina, Brazil, Colombia, Chile, and Mexico, The economic and financial imbalance presented in these countries rejects the idiosyncrasy of the investment or that fear for inflation, devaluation, the tax burden, and other social influences and conflicts that permanently appear.
1. GENERAL ASPECTS
In Colombia, the investment funds according to the regime of the tax to the rent and complementary are integrated by the values or the credits, which deals with article 2 of Decree 2368 of 1960 and organized in accordance with article 7 of the same decree.
The Administrators of Societies of Investments have by social purpose, to take in money by subscriptions of the public with the purpose of administering, according to Decree 2368, one or several investment funds.
They are watched by the Superintendence of Values and they are eminently commercial by its own definition of the decree that authorized and regulated its operation, but they are not common retailers every time its exceptional statute establishes a different regime and a different competition, as much for its operation and responsibilities, as for its control and monitoring. In these regimes, it is reversed in the principle of the "Autonomy of the will" to be based straight on the typical one of which "the subjects do not have faculties different from those specifically contemplated in the law".
The Societies Administrators receive a commission that cannot exceed 5% of the value of the fund to those who acquire units of Investment by the administration. From the assets of the fund, they pay commission to stockbrokers, list of employees, office, stationery store, contracts on security guards and accounting maintenance of networks, systems, fiscal overhaul, and safekeeping of values.
The mutual or closed funds of investment are identified by the Colombian legislation as funds of disabled companies to emit their own obligations. Usually, they operate with profit spirit, with a number of employees superior to 20. The company must hire partners.
2. DEFINITION
A fund is an assembly of resources managed by an investment society, applied in a portfolio of diversified titles that distributes the results to the participants proportionally to the number of possessed units. It constitutes the saving instrument that allows the individual to access the financial market in the most favorable conditions.
3. OPERATION
The companies that manage the investments gather funds from different investors and buy certificates of deposit, commercial papers, bonds, stocks, or other financial instruments, or a combination of those, according to the specific objective of the investment fund. Graphically it would be:
4. INVESTMENT UNITS
They are parts proportional to the value of the fund and their price is calculated daily at the closing of the operations in the stock exchanges of Colombia.
Its value, in a determined date, is calculated dividing by the total of investments plus the money in cash, except the cost of managing by the number of units. The formula for this calculation is expressed as follows:
| Vt: | value of a unit of investment at the end of a day |
| Kt: | value of investments plus the cash, in day t |
| C: | the daily cost of administration expressed in % |
| N: | number of investment units |
The number of investment units of an investor is calculated discounting from the amount to invest the income commission.
The value of the funds is calculated daily and it is expressed in units. When settling down the investment fund, you have to determine the initial value of the fee or start off by unit. Then when you are investing in the fund, you are “buying portions” of the fund. For example, if you invest $15,000,000 in a fund that finishes settling down and fixes the initial value of the unit to $1.500, you become the proprietor of 10,000 units (15,000,000/1,500).
The fund must present/display daily a total valuation according to the obtained yield of the used instruments of investment. Let us suppose that in its beginning the fund gathered $500,000,000 (equivalent to 333,333.33 parts), which it invested immediately in commercial papers. When making its valuation to the month of having initiated, the net value of the fund increases once to $522,500,000 discounted from the administrative expenses. With this valuation, the new price of the unit is determined, just by dividing the net value by the number of units (522,500,000 / 333,333.33) equal to $1,568 per unit.
As the initial value of the unit was $1,500, the yield of its investment is 4,5% during the month ((1.568? 1,500) * 100). As the yield of an investment fund can occur to whose account cannot be known in advance, thus constituting itself is a risk factor.
5. INVESTMENTS OF THE FUND
The decrees 3233 of 1965 and 1731 of 1974 indicate the allowed or authorized investment. Within these restrictions, we are going to analyze how the investments are due to be selected. The investor (investment fund) faces possibilities or alternatives, each one with awaited yield, E (RI) with a Gi risk.
| i: 1, 2, 3, 4, ... n |
A portfolio is an investment conducted in an assembly of opportunities that offers the market and that has as its purpose the diversification of the risk in an efficient way. The portfolio can be made up of the total or part from the n investment opportunities that appear in the market.
The objective consists of maximizing the yield assuming a level of acceptable risk, or diminishing the risk, with a level of awaited yield, in such a way that it invests a proportion XI in each one of the investment opportunities that are attractive to him.
By disposition of the government, less than 10% of the assets do not have to be invested in values, whose maturity term is not superior to (60) days, norm applicable only to the opened special investment funds in agreement with article 2,6,2,1, of the Regime of Public Market of Values.
Example: supposing that the fund chooses the following alternatives of investment, between the n that offers the market to him.
| Alternatives | Xi | E (Ri) | Gi |
| 1 | X1 | E(R1) | G1 |
| 2 | X2 | E(R2) | G2 |
| 3 | X3 | E(R3) | G3 |
| 4 | X4 | E(R4) | G4 |
| 5 | X5 | E(R5) | G5 |
| u | Xu | E(Ru) | Gu |
The yield awaited for of portfolio will be equal to:
Actually, computer programs are used to select the alternative that allows obtaining the objective of the investor, given the high number of investment opportunities that appear.
The society administrator looks for opportunities within which it offers the market to the investor with the following criteria:
a. For the same yield, the smaller possible risk.
b. For a given risk, the maximum possible yield.
In order to measure the risk, the coefficient of b is used to measure the standard deviation of the share in relation to the average of the market.
Although in the process of evaluation of portfolio one works with two parameters (awaited yield and risk), it is important to write down that in the financial world a series of variables concurs that are not quantifiable. Our market of capital is not efficient, and a big investor can influence in the short term the prices of stocks; for the small investor there doesn't exist the privileged information (he does not have access to the information), and therefore the selection of optimal portfolio becomes difficult from the practical point of view for the individual investors, but it does not stop an investment fund, institutions that have sufficient elements of judgment.
The theory of portfolios reaches a practical conclusion that consists of the diversification necessity, with which the funds work.
For diversification to be effective, the existing correlation between the diverse opportunities must be analyzed. Let us remember that the correlation coefficient measures the degree of affinity between the two or most variable ones and that this coefficient varies between - 1 (Maximum correlation negative) and + 1 (Maximum correlation positive).
Statistically, we speak about correlation when the coefficient is superior to 0.80. If for the selection of portfolio, one is that two or more stocks present/display a high degree of correlation, one is due to be taken solely from them since its behavior is going to be similar to one of the others and therefore the diversification would be purely theoretician.
The correlation next to -1 indicates that the results of a possibility are very similar to those of the other but in the opposite sense. In this case, one obtains the maximum protection against the risk, at a level of zero yields.
6. ADVANTAGES OF THE INVESTMENT FUNDS
A. CONSTITUTE AN INSTRUMENT FOR THE NATIONAL DEVELOPMENT: the funds were created with the spirit to receive savings and to channel them towards the factors of national production. One is to take advantage of the experiences in the developed countries, through institutions that offer to the public investor confidence by their security, in addition to liquidity and yield. The activity of the investment funds must be oriented to receive savings of the household sector, which traditionally has participated in a small proportion in the formation of the Colombian market of capitals.
From a macroeconomic point of view, we can measure the importance of the funds by their participation in the increase of savings and by the stimulus that can give to different sectors from the economic activity in accordance with their investments.
B. THEY CONSTITUTE A TRUE ALTERNATIVE OF INVESTMENT: for the people who do not have the specialized knowledge, but they have some money to invest, offering flexibility, professional administration, diversification, liquidity, and little risk.
C. TAXING: the investments in specialized funds are tax-free of legal costs; the yields generated by these investments are not taxed with a tax of leasing.
7. HOW TO INVEST
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To consult with a particular fund, or several of them about the minimum amounts of investment in fixes rent at heart or of stocks. In addition, it is possible to be consulted in any financial organization, with a stockbroker, a magazine, or a specialized newspaper. After fixing its objective of investment one can ask for information directly from the company manager. All funds must provide a copy to him of a prospect before accepting its initial investment. If the prospect inquires about: initial, objective minimum investment of the fund, results, level of risk that is run in the investments, and commissions that are received.
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To choose a modality.
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To hasten the forms and to give it with the amount to invest.
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To find out mass media (telephone, fax, Internet, press, etc.) for periodic information of the value of the investment units.
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When it is desired to eliminate, one speaks to the society manager, the organization that has a maximum of five days to execute the mandate and to give the money back.
Example: REPORT OF AN INVESTMENT FUND
| Detail | Amount | Unitary commercial Value | Total commercial Value | Total value group |
| SHARES | ||||
| SECTOR 1 | ||||
| A | 600,000 | 6,425.24 | 3,855,144,000.oo | |
| B | 200,000 | 2,684.35 | 536,870,000.oo | |
| C | 424,755 | 3,134.52 | 1,331,403,042.60 | |
| D | 67,755 | 7,726.31 | 524,129,691.47 | 6,247,546,734.07 |
| SECTOR 2 | ||||
| A | 850,000 | 4,751.67 | 4,038,919,500.oo | |
| B | 1,000 | 781.88 | 781,880.00 | 4,039,701,380 |
| SECTOR 3 | ||||
| A | 2,804,699 | 517.68 | 1,451,936,657.32 | 1,451,936,578.32 |
| SECTOR 4 | ||||
| A | 181,487 | 3,316.17 | 601,841,744.79 | 601,841,744.79 |
| TOTAL SHARE | 5,129,778 | 12,341,026,437.18 | ||
| FIXED RENT | ||||
| CDT (Fix Term Investment) | 1 | 700,920,209.41 | ||
| TOTAL FIXED RENT | 700,920,209.41 | |||
| Total investments | 13,041,946,646.59 | |||
| Investments of high liquidity | 327,054,759.15 | |||
| Other assets | 15,892,331.02 | |||
| Residual liabilities | -245,073,813.65 | |||
| Net value of the founds | 13,139,819,923.11 | |||
| Units in circulation | 4,726,775.82 | |||
| Value of unit to the date | 2,779.87 |
