• Today, as part of the "Calculate and don’t miscalculate" campaign, the UOKiK gives some advice on what to look for when choosing an investment fund.
• Before you entrust your money to Investment Fund Company, please check the costs involved in investing in investment funds, compare the fees charged by different investment funds and carefully read the documents of the selected fund.
• Remember that you can not only gain but also lose - therefore check the risks associated with investing, the fees and the possibility of withdrawing funds.

The "Calculate and don’t miscalculate!" campaign of the President of the Office of Competition and Consumer Protection is still under way and the Office gives advice on how to protect yourself from unsuccessful financial investments. Among the large number of products that allow multiplying savings are investment funds, which are a form of collective investment of money. You pay money into a fund and the fund management invests it in e.g. shares, bonds, real estate or receivables.

- In principle, investment funds are a solution for persons who do not have enough knowledge, experience or time to invest on the stock exchange or buy financial instruments on their own. They prefer to entrust the multiplication of their savings to professionals. However, it is important to remember that investment funds are complex in nature and have incurred losses many times in the past. Before signing an agreement, the Office recommends to get familiar with the terms and conditions as well as described risks e.g. the prospectus, the investment strategy adopted by a given fund or the experience of the investment advisors who manage the fund - says Tomasz Chróstny, the President of UOKiK.

Types of investment funds

Investment funds are instruments that combine funds of individual investors and invested the money in different types of instruments. By definition, participation in such funds allows investors to take advantage of the principle of diversification of investments and investment instruments within a single product. By investment policy, the funds can be divided into:

• capital protection oriented funds, investing primarily in fixed-income securities, i.e. treasury bills and treasury bonds,
• balanced funds, which are characterised by a more or less equal number of shares and bonds in the portfolio,
• flexible investment funds, which may change the way the money is invested, depending on the economic situation in the financial market. There are also aggressive funds that invest 100% of the money in shares of entities that begin their adventure on the stock exchange and rely on their quick potential for growth in value.

According to the Act on Investment Funds and Management of Alternative Investment Funds, there are also open-ended investment funds, specialised open-ended investment funds and closed-ended investment funds. The participation of the investors in open-ended investment funds and specialised open-ended investment funds is confirmed by the allocation of participation units. In the case of closed-ended investment funds, investment certificates are issued. The main difference in the operation of those instruments is liquidity, which means the easiness of obtaining a return of the invested funds. Liquidity of funds involves the risk of not being able to make disbursements before the end of the contractual period.

Risk

Regardless of the types of investment funds, they might involve numerous risks. With regards to funds that deal with shares, there is a risk related to the valuation of the units or certificates due to changes in the value of share portfolios as a result of their quotations. They can produce above-average results during the bull market but they can also generate significant losses during the collapse of the stock market. The latter may result from, e.g., the bankruptcy of entrepreneurs whose shares or corporate bonds are an important component of the fund's investment portfolio.

Fees

When deciding to invest in investment funds, you should take into account the necessity to pay certain fees which are to cover the costs of operations of Investment Fund Company. The fees are charged at various stages of the execution of signed agreements. They may be charged on a regular basis during the execution of the agreement or it can be a one-time payment, depending on the performed operations. The cost of operations of Investment Fund Company is covered by a fixed management fee. Distribution and redemption fees, on the other hand, are charged as a percentage of each deposited or withdrawn amount. Moreover, there may be other types of fees involved, e.g., exchange or conversion fees to cover the costs of exchange or conversion between sub-funds. There is also a commission charged in the case of success of Investment Fund Company, the so-called success fees which depend on the increase in the value of assets and which may be calculated in various ways.

Considering the variety of fees, commissions and other charges, as well as the variety of their names, it is important to carefully read the information provided by distributors and on Investment Fund Company websites before concluding any agreement. Prior to each investment decision, it is also important to review the way of calculation of the value of cash that will be disbursed when the money is withdrawn from the investment fund.

Window dressing - stay alert

Investors should be particularly careful with regards to announcements of the managers of investment funds about exceptional profits "in the recent period" (usually a short one, e.g. three months), especially if the investment fund is a small entity in terms of assets under management and has been operating since recently.  The managers of investment funds often use certain practices known as window dressing, which involves showing short-term, exceptionally high profits to attract investors, without mentioning that maintaining such a level of profitability is practically impossible in the long term. The above-mentioned practices are possible due to certain financial operations thanks to which it is possible to show a significant profit in the chosen time window, however, at the same time, it is also possible to hide deferred losses that will reduce that profit in the near future. The above is particularly easy and impressive when the fund manages relatively small resources, that is at the early stage of the operation of the fund.

Before investing in investment funds...

1. Collect information about the offer and analyse it properly

The material provided by the entities should enable you to understand the nature of the investment, risks, costs and security. The information can be found in, e.g., newsletters or brochures, as well as in articles of association of the entities or key information for investors. While becoming familiar with the content of the documents, check whether you have also received the necessary annexes. Ask the entities to provide you with complete documentation before you sign any agreement. You have the right to take the documents home and familiarise yourself with them properly. Only proper analysis of the documents can protect you from making a hasty decision to entrust your savings to investments that do not meet your needs.

However, don't limit yourself to reading only the information contained in the provided documents. It is very important to examine the business model of the entity, the methods of conducting business and the method of its financing. The way in which Investment Fund Company operates is very important while choosing an investment fund. Such information can be found on the Internet but stay alert - not every positive review on the Internet is reliable.

Also, be careful with regards to historical data on the performance and profit of investment funds. Due to certain socio-economic changes, such as the emergence of economic crises or the pandemic, the good performance in the past may not necessarily be the case in the future. Such information should not be the only factor you take into account.

2. Compare the offers

There are many investment funds available in the market, according to a report by the KNF (Financial Supervision Authority), at the end of 2020, there were as many as 737 of them. The differences in the funds are, i.a., the level of charged fees, risks, minimum freezing time of the funds, instruments in which the funds invest the money. Before entrusting your money, it is advisable to collect information about various competing funds.

3. Check the costs and the options to withdraw the money

Investing in funds involves paying different types of fees, e.g., management fees, success fees, distribution fees, fees that are calculated based on the costs of running the fund, and fees charged for early termination of an investment. The fees may be directly related to the amount of potential profit that can be made once the investment is complete. However, the amount of money that is returned to investors is also affected by the possibility of suspending or withholding distributions by Investment Fund Company. Information regarding the above must be included in the documents that set out terms and conditions of agreements, which should be properly analysed before making any investment decision.  

4. Familiarise yourself with the risk associated with investing in a particular fund

The success of the fund may depend on the investment strategy adopted by the entity, i.e. what instruments the fund invests in, e.g. shares, bonds, receivables, real estate. The level of stability and liquidity of the instruments may translate into risk, that is, not only the probability of incurring losses but also the possibility of withdrawing funds by investors.

The operation of investment funds is directly related to certain risk factors, such as interest rates, legal environment and economic situation on financial markets. Disturbances of stock quotes with regards to listed companies, financial difficulties of banks or investment funds may directly translate into the effectiveness of specific funds which are related to the above, directly and indirectly.

About the campaign organised by the President of UOKiK

The aim of the "Calculate and don’t miscalculate" campaign organised by the President of the Office of Competition and Consumer Protection is to increase consumer awareness and safety. From 6 September, spots related to the campaign have been appearing on TV and radio. They are broadcast at no cost, pursuant to Art. 31(c) of the Act on Competition and Consumer Protection.

― Media, institutions and NGOs are encouraged to join the campaign. Any form of support for the campaign will help us reach a wider audience and improve consumer safety - says Tomasz Chróstny, the President of UOKiK.

The spots used for the "Calculate and don’t miscalculate" educational campaign are available on the website of the Office of Competition and Consumer Protection.

Konsument.edu.pl

A friend sends you a link and persuades you to make millions? Check whether you may fall into an investment trap. Visit www.konsument.edu.pl - it is a social network simulator, where we safely show what tricks scammers use. Each "trap" ends with a summary: advice on what and how to check before using the offer, as well as information concerning where to find help. The website is free to use to educate young people – it includes a special menu for educators along with 10 lesson plans. 

Consumer assistance:

Telephone number: 801 440 220 or 22 290 89 16 – consumer helpline
E-mail: [SCODE]cG9yYWR5QGRsYWtvbnN1bWVudG93LnBs[ECODE]
Consumer right advisers – in your town or district

Additional information for the media:

UOKiK Press Office
Pl. Powstańców Warszawy 1, 00-950 Warszawa, Poland
Phone +48 695 902 088, +48 22 55 60 246
E-mail: [SCODE]Yml1cm9wcmFzb3dlQHVva2lrLmdvdi5wbA==[ECODE]
Twitter: @UOKiKgovPL