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An Investment Fund is an autonomous asset which results from the combination and investment of individual and collective entities savings in securities or equivalent.
A Real Estate Investment Fund is one that makes its investments mainly in real estate.
It is an alternative financial product to the investment of the investors’ savings, particularly, in bank deposits and to the direct investment in the capital market or in securities, having the advantage of its investments being supervised and managed by specialized professionals in the capital and real estate markets.
This supervision is carried out by a Real Estate Investment Fund Management Company (“S.G.F.I.I.”) or by a Securities Investment Fund Management Company (“S.G.F.I.M.”) in exchange for a management fee (payable by the Fund).
These entities’ unique purpose is the management, on behalf of the Participant, of one or more Real Estate Investment Funds. An S.G.F.I.M. manages both Real Estate Investment Funds and Securities Investment Funds, whereas an S.G.F.I.I. can only manage the first ones. The Fund comprises a set of values, given under the terms of the law, in order to protect the Investors’/Participants’ interests.
Besides the Management Company, there are other entities involved in this process.
The Depositary (usually a Bank), that receives on deposit the Fund's assets and that, among other duties, receives and fulfils requests for subscription and redemption of units of participation (UP's), shares that represent the investment. In addition, it is jointly liable for the compliance with the Fund’s Management Regulation (document that contains the identifying elements of the participants and establishes the rules, rights and obligations of each one of the stakeholders in the process).
Finally the Distributor (which may be more than one) is in charge of promoting the Fund’s units to the savers. However, in most cases, the Depositary entity also fulfils this role.
Regarding the Variability of the Capital
Open-Ended Funds - comprise UP's variable in number, i.e., the number of units varies according to the market’s demands. A subscription results in an increase of UP's and a redemption translates into an elimination of the corresponding UP's.
Closed-Ended Funds - comprise UP's in fixed number, established at the time of issue, which may eventually be increased, upon predefined conditions in the Management Regulation. The investment or disinvestment in a closed-ended fund is made through the purchase or sale of UP’s.
Mixed Funds - consist of two categories of units, one being in a fixed number and the other variable in number.
Regarding the Form of Compensation
Income Funds - The income generated is delivered to the Participants, on a regular basis.
Capitalization Funds - Automatically reinvest the income generated by its portfolios, not distributing income.
When making the decision to invest in Investment Funds one must take into account its diversity. In fact, Investment Funds differ according to several aspects, namely the ones described above and other three: Liquidity, Risk and Profitability.
The capacity of turning the UP’s into cash, available to the investor. The Fund's liquidity can be measured through the period of advance notice of reimbursement set in the Management Regulation.
Liquidity in Closed-Ended Funds can only be obtained through the liquidation laid down in the Management Regulation. However, Participants may require the Fund’s liquidation provided that, within twelve months after its constitution, their units are not admitted to quotation on the stock exchange.
It is associated to the volatility of profitability arising from a given financial investment in Investment Funds. Therefore, one needs to take into account:
The nature of financial assets that compose the portfolio.
The Fund's performance scope, i.e., the markets where those assets are transacted.
Investment funds, unlike other financial investments, do not guarantee rates of return. This way, the disclosed profitability must be regarded merely as indicative, reflecting only the behaviour occurred in the past. Nevertheless, there are features, included in the Management Regulation, which should always be read before subscribing units and ought to be taken into consideration.
One must also take into account the Fees, amounts that are charged during the commercialization and management of the Fund, which pay for the activities of the Managing, Depository and Distributor Entities. Usually, these are divided into:
Subscription Fee -This fee may exist or not. If it does, it is charged in the act of new units’ subscription and it is based on a fixed percentage, deductible to its net asset value.
Redemption Fee - Like the previous, this may not be mandatory. If it is, the fee will be charged over the net asset value of the units on the reimbursement (or redemption) value date, based on a fixed percentage.
Management Fee - Periodically payable by the Fund to the Management Entity, meant to cover its expenses and compensate its management services. It may consist of a fixed component (based on a fixed percentage of the Fund's net asset value) and a variable component (resulting from the valuation of the UCITS’ assets).
Deposit Fee - To be paid periodically by the Fund. It is designated to pay the Depositary services; it is based on a fixed percentage, over the Fund's net asset value.
The subscription is made by filling out the Bulletin of Subscription ("Boletim de Subscrição") addressed to the Management Entity, which is available in the Distributors’ branches (banks or other places legally established and duly authorized).
The debit is subsequently made into the subscriber’s current account. For each subscription operation there will be an entry, which identifies the unit value of each subscribed unit, the total of acquired units and its valuation to date. This information is sent to the Participant.
All units are identical and give the Participant ownership over part of the Fund’s assets, which correspond to the value of the units of participation (UP’s) he holds. The value of each UP is the result of dividing the net asset by the number of units in circulation.
The redemption of the UP is made by filling out a Bulletin of Redemption (“Boletim de Resgate”) addressed to the Management Entity, which is available in the Distributors’ branches. The credit is subsequently made on the subscriber’s current account or in another authorized account for this purpose, in case the subscriber is not a customer of the Distributor bank.
If it is not requested the total redemption of units, the Participant will be informed about the number of units still available.
Both redemption and subscription operations are carried out based on the value of units calculated, by the Management entity, for that day.
Information: the Law itself imposes the obligation to provide the Participant with a varied set of information items such as Prospectuses (simplified and full), periodic management reports, publication of the portfolios’ composition and advertising of subscription and redemption prices.
The particular configuration of the Investment Funds gives the investors of this type of financial product several advantages, such as:
a) Professional management that provides a greater safety on the investment than if deciding to invest in direct investments;
b) The risk of the investment is minimized by prudential rules, legally enforced, that influence the investment policies in use and that lead to a diversification of the investments’ portfolio;
c) The volume of assets under management, the negotiating skills and the ability to intervene in the markets allow small and medium savers to access investments that otherwise would be unreachable. Furthermore, it allows them to benefit from a reduction on transaction costs, comparing with the ones that an investor would have to incur for an individual name transaction.
d) The obligation to provide periodic information by the Management, Depositary and Distributor entities ensures a great level of transparency.
The Real Estate Fund Management Companies, associates of APFIPP - Associação Portuguesa de Fundos de Investimento, Pensões e Patrimónios (Portuguese Association of Investment Funds, Pension Funds and Asset Management), are ruled by the Code of Practice of this Association, unanimously approved by General Assembly held on 16 November 2000 and registered in the CMVM on 5 August 2004.