Types of Investment Structures You Should Know (2)

In our last post, we explained investment structures to mean how investments are legally owned. In this article, we talk about more of these investment structures.

When investing, there are various routes to follow in terms of the investment vehicles as well as the general form towards meeting your investment objectives. In our last post, we explained investment structures to mean how investments are legally owned ranging from owning it by oneself, being a part of a partnership, having a company or even trusts.

We also considered three investment structures namely: direct ownership, mutual funds and index funds. In this article, we will consider other investment structures.

Investment Trusts

An investment trust is another investment structure that is not common in this part of the world but relevant when investing internationally. Investment trusts are basically closed-end funds and are set up as public limited companies.

They are shares that are traded on a recognised stock market and they function by investing in the shares of other companies. They also invest in other securities like bonds or properties and their objective like other investment structures is to increase the value of these investments on behalf of their shareholders. To invest in an investment trust, you simply have to invest directly in the investment trust.

Exchange-Traded Funds (ETF)

Another type of investment structure is what is known as an Exchange-Traded Fund (ETF). ETFs are set up and are indeed just like mutual funds with the only exception that they are traded on a daily basis in the stock market like regular stocks.

What this means is that unlike mutual funds that have to be obtained through private fund managers, investors have the opportunity to buy and sell ETFs at any point in time during trading hours. Its ownership is divided into shares that trade on stock exchanges.

Real Estate Investment Trusts (REITs)

You can think of Real Estate Investment Trusts as mutual funds for real estate. It refers to a company that owns and also operates income-producing real estate. Just as there are different industries to buy stocks from, there are different types of REITs to invest in and they also specialize in an array of real estate.

From commercial real estate which could be investments in office buildings, to shopping centres, hotels and more, REITs allow you to invest in real estate without having to bear the full cost of building or buying land yourself.

Hedge Funds

A hedge fund is also an investment fund that pools capital from different investors towards investing in a wide range of assets. These are usually run by big-time investors who put up complex portfolio strategies and techniques for risk management.

It can also be regarded as a limited liability company where investors or owners engage in a wide range of investments. Many times, these investors use borrowed funds to make these investments, make bets on the market and so much more. For most regular investors, these processes could be daunting.

Trust Funds

Last but not the least is a trust fund. A trust fund represents a legal structure or entity that holds assets that will ultimately be passed to somebody else – like a hedge fund for ones child.

The advantage of this kind of investment is that trust funds tend to offer asset protection and even taxation benefits. It can also hold a wide range of investment securities like stocks, bonds, and real estate to mutual funds, gold, art and more.

Written by Lawretta Egba.