The investment fund, or mutual fund designates a financial company, private or public, whose main objective is to invest capital in business projects. It brings together several investors who pool funds, which will then be invested in selected companies.
Who can form an investment fund?
The investment fund can be made up of financing organizations, banks or individuals. The investors are mostly specialized in a particular sector. The creation of an investment fund is accessible to small and large investors. In this regard, there are three categories of investors:
The individuals, professional investors and business partners
To create a financial company, they must obtain authorization.
What is an investment fund for?
The investment fund provides assistance to businesses. In principle, an investment fund is set up for a period of three, five, seven years or more. The funding provided can help:
- When setting up a business (creating a brand, creating a business service company, creating a private security company, etc.).
- The development of its activities,
- When setting up an international business.
How does an investment fund work?
The operation of an investment fund is based on the constitution of funds and their investments in various products (bonds, stocks, Treasury bills, etc.). The funds formed by the investors are placed in companies previously selected according to numerous criteria, with a view to profitability. In case of the key investment terms this is important.
Use of investment fund
The investment fund can be used for different purposes to provide liquidity for the creation of a company or its development, to help a company to survive. In fact, there are different types of possible investment funds, namely the venture capital, the development capital, the seed capital, the LBO (Leveraged Buy-Out) and capital reversal.
Venture capital is paid-up capital to finance the start of business. This investment capital consists of entering the capital of the company when it is created to contribute to its development. It most often concerns young companies which have a strong development potential and which have optimal innovation capital.
Before investing, venture capitalists often conduct a study that focuses on:
- The company’s development plan, if it is in the creation phase.
- The financial statements for an already established company.
They manage the portfolio of projects by spreading the risks to other companies in which they have invested.
Development capital corresponds to the capital paid in during the life of the company to promote its development. It helps growing companies to:
- The integration of a new market
- The purchase of production equipment
- The launch of new services or products
Seed capital is used to meet the financing needs of a business for its creation. It can be used to ensure the research and development phase, the establishment of prototypes, etc.