Overall about investment funds

Investment funds are characterized by different investment strategies, different financial instruments in which the fund invests, different recommended investment periods, geographical distribution,... but in general, UCITS funds can be divided into the following basic groups:




• Money market funds - the assets of money market funds are invested in instruments with the highest credit rating (treasury bills, bonds, deposits) and are characterized by high investment security, low price fluctuations and usually short-term investment character
• Bond funds - the assets of bond funds are bonds of different issuers (governments, companies, cities, counties) and are characterized by higher price fluctuations compared to money marke funds, but still lower compared to funds whose assets are exposed to the stock market. The most common investment in bond funds assumes a medium-term investment character
• Balanced funds - the assets of balanced funds are invested in various financial instruments, most often a combination of bonds and shares, the permitted ranges of which are defined in the fund prospectus (for example, a maximum of up to 30% in stocks or a maximum of 50% in bonds)
• Equity funds – assets of equity funds are invested in shares of various companies and are characterized by greater price fluctuations compared to money and bond funds. The most common investment in stock funds assumes a long-term investment character
• Other funds - a special category of funds due to a different investment strategy compared to the basic four categories - for example, these are funds with maturity, then funds that target a certain yield or maximum price fluctuations (so-called target volatility)

Although the significance of an individual risk depends on the fund's strategy, it is important to familiarize yourself with the possible risks characteristic of an individual or selected fund before starting an investment. Most often, the risks to which the funds are exposed are:




• Market risk or the risk of changes in the prices of financial instruments in which the fund's assets are invested. This risk is most significant with stock funds
• Credit risk or the risk of the issuer of financial instruments in which the fund's assets are invested. This risk is most significant with money market and bond funds
• Currency risk or changes in the relationship between two currencies. This risk is present in funds whose assets are invested in financial instruments of different currencies (for example, american and european shares).
• Interest rate risk or the risk of interest rate changes. This risk is most significant for funds whose assets are invested in interest-bearing financial instruments (notes, bonds).
• Liquidity risk or risk of inability to sell financial instruments owned by the fund. This risk is most significant for funds that invest assets in less developed markets or in crisis situations when the volume of trading on the markets decreases (for example, the onset of a financial crisis, the introduction of a pandemic, natural disasters,...)
• Regulatory risk or the risk of changes in legal or tax regulations. Depending on the intensity of the changes, this risk affects all types of funds evenly through, for example, a reduction or increase in the capital gains tax rate (tax on investment earnings).

In the Prospectus of each fund, the risks specific to the selected fund are explained in detail, so it is advisable to study the Prospectus before investing in the fund.

In addition, it is worth paying attention to the unique risk indicator of each UCITS fund, which indicates the level of risk and potential success on a scale of 1-7. For example, UCITS funds marked 1 show that it is a fund of lower risk and potentially lower performance (yield), while a fund marked 7 shows that it is characterized by a fund of higher risk and potentially higher performance. The fund's risk indicator can be found in the Key Information Document (KID).

Investing in investment funds assumes various direct and indirect costs, which you need to know about before investing. The most common and potentially significant costs are:




• entry fee – calculated as a percentage of the paid amount. The range of entry fees usually ranges from 0-5%
• Management fee – it is included in the unit price and is not paid directly, but the total assets of the fund are reduced on a daily basis by the amount of the fee. The range of management fees usually ranges from 0.2% to 2.5% per year, depending on the fund's investment strategy, with equity funds charging the highest management fees on average.
• Exit fee – is calculated when buying units from the fund and usually ranges from 0-2%. The amount and calculation of the exit fee depends on the duration of the investment in the fund.

All fund costs are listed in the fund's Prospectus, while their impact on investment returns can be seen in the document 'Example of impact and fees on investment returns'

When thinking about investing, but also during the investment itself, it is desirable to be familiar with the basic terms, risks and characteristics of different financial instruments. Educational document 'It is important to know!' can help you with information on investment services, guidelines on where to find basic information about products, but also on information you need to know before contracting or buying products

At first glance, the documentation of each fund can be complex and extensive, however, it is recommended to review the following documentation:




• Prospectus and Rules of the fund - contains all information about the fund's investment objective, investment strategy, investment restrictions, fees, risks,...
• Key Information Document (KID) – contains summarized key information about the fund (target group of investors, fund risk indicator, performance scenario, relationship between the fund and the company that manages the fund, costs, recommended investment period, place where complaints can be filed
• Monthly report on the fund's operations - contains a graphic representation of share price movements, realized returns, fund assets, investment structure
• Example of the impact of costs and fees on the return on investment - contains an overview of all the costs that are calculated and their impact on the return on investment
• Annual and half-yearly financial reports of the fund - contain a detailed presentation of the financial position of the fund.

Investing in mutual funds is widespread and accepted by individual clients due to the following:




• The possibility of participating in the money market and capital markets even with lower amounts. By purchasing units in the fund, investment diversification is automatically achieved through exposure of the invested assets to different issuers of financial instruments, which automatically reduces the risk compared to the purchase of one or fewer financial instruments.
• Professional management - assets in the fund are managed by professional fund managers who, in addition to daily monitoring of market trends, make daily decisions about buying and selling financial instruments in the fund, in accordance with the set investment strategy
• Liquidity - the fund management company is obliged to enable investors in the fund to redeem their units at any time, within a legal period of a maximum of 7 days.

Zagrebačka banka provides the ZABA Smart Invest service through which, depending on your tolerance for investment risks, investment horizon and financial strength, the Bank gives you a personal investment recommendation fully adapted to your guidelines. The investment advisory service is available free of charge in all branches of the Bank.