Before defining the term ‘investment fund’, it will be useful to explain what is portfolio. In broad sense, portfolio refers to all the assets owned by an individual or entity. Investment fund refers to capital market instruments (share certificates, lease certificates) and precious metals including gold in which such individual or entity invests.
Investment funds manage portfolios consisting of such capital market instruments as share certificates and lease certificates and such precious metals as gold by using the funds collected from the public. Each investor participates in an investment fund by buying a contribution share representing some of the portfolio owned by the fund. Savers can exploit their savings by buying share certificates and lease certificates from stock brokers or stock exchanges. However, one needs to have knowledge and specialty to invest in securities. Furthermore, most of the individual savings are not large enough, so that portfolios created with such savings may not achieve the necessary distribution of risk. Risk may involve both the principal and the return of a portfolio. Therefore, investment funds called collective investment entities are created in the capital markets.