How do mutual funds work?
The idea of investment funds can be simplified in that a successful investor has provided an opportunity for small investors, and anyone willing to put their savings to work, to participate in the major and diversified investments that he is about to make, during a specific or indefinite period, so that their contributions are like participatory shares in this investment, and each of them has his share of the profit.
To apply the above example to reality:
- The investor is the licensed investment fund (with its staff and administrative organization).
- Small investors and depositors are the fund's shareholders, who own the fund's mutual fund units to the extent of their capital.
The fund's management usually sets a minimum investment value. Each depositor has a share of the profit in proportion to the units they own in the fund, after deducting fees and expenses.
By investing in an investment fund, depositors have the opportunity to operate their capital within large projects and diversified investments, with the availability of wise and capable capital management, which ensures that the best investment results are often achieved.
Through the following lines, we will briefly familiarize ourselves with the mechanism of investment funds and the outlines of their work process:
Raising funds from investors
We all know that investment funds are financial vehicles in which investors place their savings to operate them and benefit from their returns.
Investors buy units of the fund, and each unit represents a share of the fund's assets, which increases in value as the fund's profits increase.
The value of one unit varies from one fund to another, because the pricing of units usually depends on the size of the fund and its assets owned, as the value of the units is determined after dividing the fund's assets by the number of units.
The fund's financial value is usually calculated at the end of each business day, and the fund's value increases or decreases according to the value of the assets in which the fund invests, and the success or decline of its investments.
Asset management
The fund's management team, represented by its manager, is responsible for making investment decisions and directing the direction of investment within the pre-defined plan or according to strategies that seek capital growth, taking into account emerging developments and various market risks, under the fund' different investment orientations and specializations.
The manager makes decisions to buy or sell assets and analyzes investment opportunities based on his extensive experience in his field and his careful reading of market developments.
The most important role of investment funds is the successful management of assets, which is the most important contrast to buying shares in a publicly traded company (buying shares in a company requires you to manage your investment yourself, while in investment funds, professional funds managers do this task to achieve the fund's objectives).
Diversify investments and assets
Diversification of investments may not be a goal in itself, but its investment benefits make it a cornerstone of large investment operations, especially within mutual funds, due to the effective impact of this step in preserving capital and increasing profit opportunities, as opposed to the high risk of relying on investing in a single investment asset.
We mean asset diversification: Distributing the fund's investments to a variety of assets according to the fund's specialization (such as the types of real estate in real estate funds: residential, commercial, industrial...), while seeking geographical diversification (investing in some important investment areas that are expected to grow soon), in addition to diversifying investment in the stages of asset growth (such as construction, maintenance and resale.).
Performance evaluation
The fund management’s mission also includes submitting and publishing periodic reports to support transparency in working with investors in the fund, the most important of which are: performance measures, total return, annual rate of return, and comparing it to monitored standards, as well as periodic reports on the fund’s performance.
Structure of investment funds
It is clear to us from the discussion about the mode of operation of investment funds that they are complex financial instruments, that require a clear organizational structure and strict legislative laws to ensure the protection of investors' interests, and therefore investment funds in Turkey are subject to the control of the Securities Commission, which is responsible for licensing them and setting rules and regulations for them.
Organizational structure
The organizational structure consists mainly of:
- Fund manager: Responsible for managing the assets (buying and selling), and developing and implementing the investment strategy.
- Board of Directors: Responsible for setting the fund's investment policies and overseeing its management.
- Portfolio custodians (Portföy Saklama Kuruluşları): They are impartial third-party custodians of the fund's assets and storage of financial assets. They keep records, verify investments and asset ownership, monitor the execution of transactions and cash movement, and fulfill the duties specified in the fund's statement.
- Investment Advisor (Yatırım danışmanı): It is responsible for advising the fund management organization on all matters related to investment strategies.
- Legal Review and Audit: To ensure that the fund complies with laws, regulations, and accounting standards.
Laws and Legislation
The Capital Markets Authority in Turkey sets detailed regulations and legislation to regulate markets and develop capital market tools and investment funds. The Authority issues rules, laws, and regulations to ensure the proper functioning of investment funds and to protect the rights of investors within the funds.
These laws and legislation take into account the basics of work in the funds and set legislative specifications regarding all the details.
Start your investment in Turkish funds with Oragon
In Turkey, Oragün has launched a range of ambitious investment funds, and through its management team, which excels in the field of fund management, has been able to provide an encouraging investment model for anyone wishing to grow their savings.
In 2023, Oragun expanded its activities by being licensed as an originator and manager of venture capital portfolios.
Today, Oragon makes its investment funds available to ambitious investors who want to grow their savings, through its strategic plans to grow its funds and diversify their investment portfolios, taking into account investment risks per clear and well-studied investment principles.
In addition to Oragon's services in the field of establishing private investment funds for investors wishing to embark on their new investment experiences with a special investment vision, with the possibility of obtaining licenses and official approvals, in addition to our free advisory services on everything related to investment in investment funds in Turkey.
Edited by Oragon Company ©
