Investment funds: definition, types and how they work

What is an investment fund?

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Investment funds: the principle explained clearly

An investment fund is a collective investment vehicle. In practice, multiple investors, whether retail or institutional, contribute their capital to a shared structure. This pooled money is then invested in a portfolio of assets (equities, bonds, unlisted companies, real estate) according to a predefined strategy.

In return for your contribution, you receive units in the fund. Their value rises or falls depending on the performance of the underlying assets. The main benefit? You gain access to diversification and professional management that would be impossible to achieve alone with a small amount of capital. Rather than concentrating on a single stock, your savings are spread across dozens, sometimes hundreds of positions. Before choosing a fund, it is useful to approach wealth management with a broader perspective.

How does an investment fund work day to day?

Who manages your money: the asset manager

At the heart of every fund is an asset management company. It defines the strategy, selects assets, adjusts positions and monitors performance. In France, these firms are approved and supervised by the Autorité des marchés financiers (AMF), a framework designed to regulate their operations and protect investors.

The portfolio management team makes buy and sell decisions on your behalf. That is the whole point of delegated management: you do not have to follow the markets on a daily basis.

From collection to investment: the journey of your savings

The mechanism unfolds in three stages: the fund collects capital from subscribers, invests it in target assets, then returns it at maturity or upon unit redemption, along with any gains (or losses) generated.

Depending on the type of fund, liquidity varies considerably. Some allow you to withdraw your money at any time; others lock up capital for several years, with predefined exit windows.

How the fund earns and charges its share: fees explained simply

Nothing is free. An investment fund is primarily remunerated through annual management fees, charged as a percentage of assets under management. Entry fees may also apply at subscription, and more sophisticated funds may charge a performance fee, the well-known carried interest, which rewards the manager when results exceed a predefined target.

All fees are detailed in the fund's regulatory documents (key information document, prospectus). Reading them before investing is a sensible habit.

Equities, real estate, private equity: the main types of funds

Investment funds are first categorised by asset class. Here are the main families.

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Funds for investing in the stock market

Equity funds invest in listed companies, with high return potential but significant volatility. Bond funds focus on government or corporate debt, offering greater stability. Money market funds invest in very short-term instruments and are mainly used to hold cash safely.

Funds for investing in real estate

Real estate funds provide exposure to property without buying directly. SCPIs (French real estate investment trusts) and OPCIs pool savings to acquire office buildings, retail spaces or residential properties, and distribute rental income to unit holders.

ETFs: the automated, low-cost option

ETFs (exchange-traded funds) track a stock market index such as the CAC 40 or the S&P 500. Management is passive: no active stock selection, which means very low fees. They are often the ideal starting point for beginners, providing immediate diversification at minimal cost.

Private equity: investing in unlisted companies

Private equity involves investing in companies not listed on the stock exchange: growing SMEs, startups, and buyout targets. It encompasses venture capital (early-stage startups), growth capital (expanding companies) and buyout transactions. Long reserved for large investors, this asset class has historically delivered attractive returns, detailed further below. It draws on several complementary private equity strategies.

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FCP, SICAV, FCPR, FPCI: decoding fund terminology

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Beyond asset classes, funds differ in their legal structure.

UCITs cover the two main retail vehicles: the FCP (mutual fund), where you hold units without voting rights, and the SICAV (open-ended investment company), where you become a shareholder. These are the standard wrappers for equity, bond and diversified funds.

For unlisted assets, the private equity family includes: the FCPR (risk-based mutual fund), the FCPI (dedicated to innovation), the FIP (focused on regional SMEs) and the FPCI (professional private equity fund). The FPCI is the reference vehicle for structured investment in unlisted companies. Each is governed by rules relating to the nature of the underlying assets and applicable tax treatment.

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How to invest in an investment fund as a beginner

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Which wrapper to use

Fund units are not purchased just anywhere. The choice of tax wrapper is decisive: life insurance (assurance-vie) offers the most flexible option, with favourable tax treatment after eight years; the PEA is dedicated to European equities and exempt from income tax on gains after five years (excluding social levies); a securities account (CTO) has no cap or restrictions, but gains are taxed at the standard rate or flat tax; the PER is designed for retirement savings with a tax deduction on entry.

The practical steps to subscribe

In practice, four steps are enough: define your objective and time horizon, choose the appropriate wrapper, select the fund or funds matching your risk profile, then subscribe online or through an adviser after reviewing the fund's key information documents.

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How to choose the right fund for you

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Your objectives and time horizon first

There is no universally superior fund: the key is to find a solution aligned with your objectives, investment duration and profile. Are you looking to preserve, grow or boost your capital? Over what timeframe? A money market fund is primarily designed to keep savings accessible, while a private equity fund typically locks up capital for several years.

Return and risk: finding the right balance

Return and risk always go hand in hand. The higher the expected gain, the greater the risk of capital loss. A savvy investor spreads their money across multiple asset classes to smooth this volatility, combining different performance drivers.

The real criteria to examine

Beyond past performance, which does not predict future results, examine: the level and structure of fees, the reputation and regulatory approval of the asset manager, the consistency of the strategy with your objectives, and the degree of liquidity. Some socially responsible funds also incorporate environmental and social criteria.

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‍What it earns, what it costs: returns and taxation

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Performance varies enormously across fund families. Over the past ten years, private equity has delivered particularly strong results.

These figures illustrate the potential of unlisted assets, but it bears repeating: past performance does not predict future results and all investment involves a risk of capital loss. For a deeper look, our analysis of private equity returns covers the mechanics behind this performance.

On taxation, everything depends on the wrapper and fund type. FCPIs and FIPs may entitle investors to an income tax reduction at subscription, subject to a minimum holding period. Gains realised within a PEA or life insurance contract benefit from reduced taxation over time, with social levies still due. Worth confirming with an adviser based on your situation.

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The upsides and risks to be aware of

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What funds bring you

Three major strengths: immediate diversification (your risk is spread), professional management (experts make decisions on your behalf) and accessibility (you gain exposure to markets otherwise out of reach, such as private equity and private debt funds).

The risks and safeguards to keep in mind

No investment is risk-free. The primary risk remains capital loss: unit values can fall. Added to this are liquidity risk (impossible to withdraw funds at any time from certain vehicles) and the drag of fees, which erode net returns. Investing means accepting these trade-offs knowingly.

Private equity: how retail investors can finally access it

A club long reserved for institutions and high-net-worth individuals

Private equity was long the exclusive territory of institutional investors and wealthy individuals. For good reason: private equity funds traditionally required minimum tickets of several hundred thousand, sometimes millions of euros — an insurmountable barrier for the individual saver.

The mechanism that changes the game for retail investors

Things have changed thanks to pooling mechanisms. The principle: aggregate subscriptions from multiple retail investors within a single structure (an FPCI combined with a dedicated SPV), which then invests in target funds. This pooling significantly lowers the minimum ticket and makes private equity accessible to individuals.

This is Fundora's positioning: identifying and offering selected private equity strategies, with effective management handled by Kyoseil Asset Management, an AMF-approved asset manager, under a mandate. A rigorous regulatory framework, designed to open this asset class to a broader audience while maintaining a high level of oversight. To explore this approach, discover how to invest in private equity with dedicated support.

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FAQ on investment funds

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What are the main types of investment funds?
They are classified in two ways. By asset class: equity, bond, money market, real estate (SCPI, OPCI), ETF and private equity funds. By legal structure: UCITS (FCP and SICAV) for retail investors, and FCPR, FCPI, FIP or FPCI for private equity. Each category serves a different objective and risk profile.

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How do you choose an investment fund suited to your profile?
There is no objectively superior fund. The right choice depends on your objectives, investment horizon and risk tolerance. Then look at fees, the asset manager's AMF approval and the consistency of the strategy. An adviser can help you navigate the options.

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How does an investment fund generate revenue?
Primarily through annual management fees, calculated as a percentage of assets under management. Entry fees may also apply, and private equity funds often charge a performance fee (carried interest) triggered above a target return. These fees are listed in the fund's regulatory documents.

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What is the tax treatment of an investment fund?
It depends on the wrapper (life insurance, PEA, securities account, PER) and the fund type. Some FCPIs and FIPs qualify for an income tax reduction at subscription, subject to a minimum holding period. The PEA and life insurance offer reduced taxation on gains over time.

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How much do you need to invest in an investment fund?
It varies widely. UCITS and ETFs are accessible from a few tens of euros. Private equity institutional funds long required several hundred thousand euros. Pooling mechanisms now allow retail investors to access them with a far more affordable minimum ticket.

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Can a retail investor invest in a private equity fund?
Yes. Through pooling structures (FPCI combined with an SPV) that aggregate subscriptions from multiple individuals, with management handled by an AMF-approved firm. This arrangement lowers the minimum ticket and democratises access to an asset class that was previously closed to most investors.

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