Investment Funds: Definition, Types, and How to Invest

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Investment funds have become a central tool in modern savings. Behind this term lies a simple principle: pooling money from multiple investors and entrusting it to professionals, who then invest it in a diversified portfolio of assets. However, it's essential to understand how a fund works, what the different types of funds available are, their fees, their risks, and how to invest in them. Here's a comprehensive guide to clarify things, from publicly traded funds to private equity funds.

What is an investment fund?

An investment fund, also known as a collective investment scheme, is a vehicle for collective ownership of financial assets. Specifically, it collects capital from private and institutional investors to build a common portfolio, invested in stocks, bonds, real estate, cash, or unlisted companies. Each investor holds units or shares in the fund, proportional to their subscription, and thus benefits from the overall portfolio's performance.

The advantage of this collective management is twofold. Firstly, it provides access to diversification that an individual with limited capital could not achieve alone. Secondly, it entrusts asset selection to a professional management team, whose job it is to analyze markets and manage the portfolio.

The Role of the Management Company and the AMF

An investment fund does not manage itself: it is managed by a portfolio management company. This entity defines the fund's strategy, selects securities, makes trading decisions, and monitors performance. In return, it receives remuneration in the form of management fees, which are central to fund management.

In France, these management companies are approved and supervised by the Autorité des marchés financiers (AMF), which strictly regulates their activity: prudential rules, transparency towards investors, and information requirements. This demanding regulatory framework provides significant protection for savers and distinguishes regulated funds from unregulated investments.

How does an investment fund work?

When an investor places money in a fund, they become a unit holder. The value of these units fluctuates daily based on the performance of the assets held in the portfolio. This value is called the Net Asset Value (NAV): it corresponds to the fund's net assets divided by the number of outstanding units. Units are bought or sold at this value.

Active and passive management

Two main management approaches coexist. Active management aims to outperform a benchmark index: the team selects the securities it deems most promising and regularly adjusts the portfolio. Passive management, conversely, simply seeks to replicate an index. This is the principle behind index funds and ETFs, which, for example, track the CAC 40 or MSCI World without discretionary intervention.

Active management offers the potential for outperformance, but at a higher cost and without guaranteed results: many active funds fail to consistently outperform their benchmark. Passive management, which is less expensive, is attracting more and more investors due to its cost-effectiveness.

Management fees

Investing in a fund comes with costs that must be factored into return calculations. These primarily include:

• entry fees, charged upon subscription (often negotiable, sometimes zero);
• annual management fees, which compensate the management company (typically 0.2% for an ETF, 1.5% to 2.5% for an active or private equity fund);
• performance fees, which apply when the fund exceeds a set objective.

An advantage of collective investment is that these management fees are shared among all fund investors, which reduces the per-unit cost of accessing professional management.

Different types of investment funds

There are many categories of funds, covering all asset classes. The choice depends on one's investment horizon, risk appetite, and individual objectives.

UCITS: FCPs and SICAVs

UCITS (Undertakings for Collective Investment in Transferable Securities) are the most common funds for the general public. They invest in equities, bonds, or money market instruments on behalf of a large number of savers. Two legal structures exist: the FCP (fonds commun de placement), a co-ownership of securities without legal personality, and the SICAV (société d'investissement à capital variable), which takes the form of a company where the investor becomes a shareholder. In both cases, the operation for the saver is very similar.

Index funds (ETFs)

Listed index funds, or ETFs (Exchange Traded Funds), replicate the performance of a benchmark index. They are characterized by very low management fees and continuous trading on the stock exchange. For an investor seeking diversified and low-cost exposure to listed equity markets, ETFs have become an essential building block.

Real estate funds (SCPIs, OPCIs)

Real estate investment funds allow you to invest in real estate without directly managing properties. SCPIs (sociétés civiles de placement immobilier) collect savings to acquire and lease a real estate portfolio, and distribute rental income to unit holders. However, be careful to distinguish the distribution rate, often highlighted, from the actual overall performance: in 2025, the annual overall performance of SCPIs was only +1.46% according to IEIF, with an average unit price decrease of -3.45%.

Private equity funds (FCPRs, FCPIs, FPCIs)

Private equity encompasses funds that invest in unlisted companies. It is the best-performing asset class over the long term, with a net IRR of 12.4% per year over ten years for French private equity (France Invest/EY, data as of 31/12/2024). Several strategies coexist:

• venture capital (venture capital), which finances high-growth startups;
• growth equity (growth equity), which supports already profitable companies;
• leveraged buyout (leveraged buy out or LBO), which finances the acquisition of mature companies.

Several vehicles provide access to this: the FCPR (risk capital mutual fund), accessible to the general public with at least 50% invested in unlisted assets; the FCPI (innovation mutual fund), dedicated to financing unlisted innovative SMEs (Article L.214-30 of the CMF); and the FPCI (professional private equity fund), reserved for informed investors and favored for leading strategies.

Why invest in an investment fund?

Investing through a fund offers several concrete advantages for individuals. Diversification is the primary one: with a single subscription, savers gain access to a diversified portfolio across numerous securities, which dilutes risk compared to buying a few individual stocks directly. Investing in a fund also allows for economies of scale, as management fees are spread among all investors.

Next is access to professional management: asset selection and portfolio monitoring are entrusted to experienced managers, within a regulatory framework supervised by the AMF. Finally, some funds provide access to markets or opportunities that are difficult to reach directly, such as unlisted private equity companies or specialized sectors. Depending on the investment wrapper used (securities account, life insurance, PEA), the taxation applicable to capital gains can also be optimized.

Risks and limitations to be aware of

An investment fund is never without risk, and past performance is no guarantee of future results. The first risk is that of capital loss: the value of units can decrease if markets or underlying assets depreciate. The second is the risk of underperformance, particularly for actively managed funds, the majority of which do not consistently outperform their benchmark index.

The third is liquidity risk. While listed funds (UCITS, ETFs) are easily resold, private equity funds lock up capital for a long duration, typically 7 to 10 years. Early exit is possible through the secondary market, often at a discount, which makes theilliquidity of private equity a key factor to consider. Finally, management fees impact net returns: they should always be compared to the actual performance delivered, not to a displayed gross return.

How to invest in an investment fund?

Before investing, the first step is to define your objectives: investment horizon, acceptable risk level, liquidity needs, and whether you seek income or capital gains. A saver seeking a secure and readily available investment will turn to money market funds or euro-denominated funds, whose returns remain modest (2.6% in 2024 for euro-denominated funds, compared to the Livret A at 1.5%). Conversely, a long-term investor willing to accept risk can target equity markets via ETFs, or even private equity to seek higher performance.

Accessing private equity through pooling

Private equity has long been reserved for institutional investors, with minimum investment amounts starting at 200,000 euros, or even 1 million euros for the most selective funds. This barrier is now being lowered thanks to pooling structures. A SPV (Special Purpose Vehicle) groups subscriptions from several individual investors within a single structure, which then invests in target funds as a single institutional investor would. The institutional minimum investment is thus pooled, and access to private equity is democratized.

Fundora: Accessing private funds under discretionary management

Fundora identifies and offers private equity strategies selected for their institutional quality (venture capital, LBO, growth equity, secondary, private debt), structured as FPCI with an SPV mechanism to pool subscriptions. The effective management is provided by Kyoseil Asset Management, an AMF-approved portfolio management company under number GP-99040, within the framework of the mandate. This architecture makes leading strategies accessible to individual investors, with multiple objectives that vary according to the risk profile (these are target objectives, without guarantee; past performance is not indicative of future results, and there is a real risk of capital loss). To invest in private equity via this approach, or for more engaged investors via Fundora Plus, registration is done directly on the platform. To learn more about the performance of this asset class, consult our analysis of the return of private equity.

FAQ on Investment Funds

What is an investment fund and where does the money come from?

An investment fund is a collective investment vehicle that pools capital from numerous investors, both individual and institutional, to invest it in a diversified portfolio of assets. The money therefore comes from investor subscriptions, who receive fund shares in return. Management is entrusted to an AMF-approved management company, which selects and manages the assets.

What are the different types of investment funds?

The main types are UCITS (FCP and SICAV), index funds (ETFs), real estate funds (SCPI, OPCI), and private equity funds (FCPR, FCPI, FPCI). Each type of fund corresponds to a different asset class and risk-return profile, from the most conservative money market funds to the most aggressive venture capital funds.

How does an investment fund earn its fees?

A fund earns its fees through annual management fees, typically ranging from 0.2% for an ETF to 1.5% to 2.5% for an active or private equity fund. Additionally, there may be entry fees and performance fees. For private equity funds, the manager also receives carried interest, which is a share of the capital gains realized above a certain hurdle rate.

What is the return of an investment fund?

The return depends entirely on the asset class. For illustrative purposes, over ten years, French private equity shows a net IRR of 12.4% per year (France Invest/EY), the MSCI World 11.3% annualized in euros, the CAC 40 8.9% with dividends reinvested, compared to 2.6% for euro funds (2024) and 1.5% for the Livret A savings account. Past performance is not indicative of future results.

Are investment funds accessible to individual investors?

Yes. Mutual funds, ETFs, and real estate funds are widely accessible through a securities account, an equity savings plan (PEA), or life insurance. For private equity, traditionally reserved for institutional investors, access is becoming more democratized thanks to the pooling of subscriptions within structures like FPCIs organized as SPVs, which lower the usual entry threshold.

What are the risks of an investment fund?

The main risks include capital loss, underperformance compared to a benchmark index, liquidity risk (particularly pronounced for private equity, where capital is locked up for 7 to 10 years), and the impact of management fees on net returns. No fund, apart from capital-protected products, offers protection against market downturns.

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