Funds: If you still don’t have a large enough capital to allow a good diversification in financial assets (government bonds, CDs, shares, debentures, etc.), mutual funds are a good option for you.
If you want flexibility in the contributions and redemptions of your financial investments, being able to apply or redeem the exact amounts you need, investment funds are a good option for you.
If you don’t know exactly when you will need the money that is invested, it could be tomorrow if you see an interesting opportunity or it could be much later when you retire, mutual funds are a good option for you.
If you don’t have the time or knowledge to analyze allocation strategies in the various financial assets available in the market, investment funds are a good option for you.
Investment funds are a type of collective financial investment that brings together resources from several investors to acquire a set of financial assets – government bonds, private bonds, currencies, shares, among others. Each investor in a fund has a number of shares proportional to the total value of their investments.
It is like a residential condominium, in which each resident owns an apartment (quota) and pays the landlord to manage the building.
Within this condominium we have some functions that are performed by different teams. The fund manager is responsible for choosing the assets that will compose the investment portfolio, observing the risk/return ratio. The administrator is responsible for managing the operational routines, including legal and legal aspects. The custodian is responsible for the custody of the portfolio’s assets. And, finally, we have the figure of the independent auditor who is responsible for monitoring compliance with the rules. These rules are described in the fund’s regulation, which works as the condominium’s bylaws.
The more segregated these functions between different entities, the greater the security offered to shareholders, mainly because this model avoids possible conflicts of interest.
An important point to note is that the Brazilian financial system is highly regulated, which brings some security to the investor. One of them is what we call the Chinese wall, where the manager’s resources are not confused with the fund’s resources. Therefore, if the manager is not as solid as a top-tier bank and eventually goes bankrupt, investors’ resources are protected, since there is no communicability between the latter’s resources and the former’s.
There are several types of investment funds on the market. Anbima, the Brazilian Association of Financial and Capital Market Entities, which speaks on behalf of institutions such as banks, managers, brokers, distributors and administrators, basically classifies funds into four types: fixed income, shares, multimarket and exchange.
Within this more general classification, we can make subdivisions that further specify the type of investment that is carried out in that fund, as an example we have the referenced, the private credit, the international, the long short, the long biased and so on! The list seems to be endless!
A point to be aware of when opting for this type of investment is the fees to which you will be subject. The fees to keep an eye on are the administration and performance fees.
The administration fee comes to remunerate the teams that work in the operation of the fund and that we have already presented here, are the manager, administrator, custodian, etc. It is very important that the fee charged is consistent with the complexity of the fund.
For example, a hedge fund tends to have a higher management fee than a referenced fund, which must have its performance, as the name suggests, very close to its reference, which is the CDI, and with operations that are much more trivial for the your manager.
Therefore, the management fee for this type of fund must be low, less than 1% of shareholders’ equity per year. In the market, we see referenced funds such as HiperFundo Bradesco DI that charge a 2.9% management fee, a value that ends up compromising investor profitability, as we can see in the comparative chart of 2017 with another referenced fund available in the market, BTG Pactual Yield DI Referenced Private Credit, but with a management fee of 0.3% per year.
Those who invested R$100 thousand in the Bradesco fund at the beginning of 2017 had a return at the end of the same year of almost R$5 thousand less than those who invested in the BTG Pactual fund. This difference is largely due to the issue of the administration fee.
The performance fee is not a rule among investment funds, being more observed in multimarket funds with greater volatility and in stocks. This fee is levied on the fund’s return that exceeds its reference index, benchmark.
The rate can be seen as an alignment of interest between the investor and the manager, since when the manager beats the market for the investor, he also gets a slice of the result.
The returns achieved by equity investment funds are taxed at income tax at 15%, and the amount is charged at the time of redemption by the fund manager. There is no IOF charge.
On the other hand, Short-Term, Referenced DI, Fixed Income and Multimarket investment funds are taxed like public securities, both by income tax and by IOF, where the longer the period of application, the lower the tax rate.
In these funds there is a mechanism called come-quotas, which is the advance collection of income tax on the last business day of the months of May and November of each year, even if you do not make redemptions.
The amount to be paid is calculated by the fund manager based on the income accumulated in the six-month period (from 1 June to 30 November or from 1 December to 31 May).
The rate to be applied in the case of short-term funds will be 20%. For long-term funds, the rate drops to 15%. If the application takes place after the start of one of the two six-month cycles, the calculation is carried out from the application date.
This form of taxation is known as come-quotas because the value of the quota does not change depending on the tax, but the number of quotas. Many times the investor doesn’t even realize that there was the share-eater, but it’s good to know that it exists.
So far you have seen the main characteristics and you have a good idea of what to look for when choosing an investment fund, there are only two variables to consider in the final choice, your investor profile and the market moment.
These variables are super important and I’ll explain why. It is not because the fund is fixed income that it is recommended for a conservative investor. And just because a fund performed well at a given moment does not mean it will behave similarly in the future.
Follow this example of a fixed income fund, which, contrary to what common sense suggests, is not indicated to compose a large part of the portfolio of a conservative investor, which performed very well in one year, 2012, but in the following year had a result disastrous for its investors.
Note that there was no management problem here, simply from one year to the next that type of application no longer made sense due to market and economic issues.
Now you know how to choose a good background and what to watch out for before making this choice!
Look for a financial planner you trust when selecting the most suitable investments for you, he will guide you in the most suitable classes for the market moment, considering your profile and your goals.