Investment funds and unit-linked

Investment funds and unit-linked policies are very popular financial investment products. Both give investors access to the financial markets and the chance to diversify their portfolio. This article describes the differences between the two products, their importance, how they are taxed in Spain, the types available, their risks and other key aspects investors should know.

What are investment funds and unit-linked policies?

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Investment funds are a financial product that pools the money of many investors to invest it in a diversified portfolio of securities. Investors buy shares in the fund, and the money is invested in a variety of assets such as equities, bonds and real estate, among others. The fund is managed by a team of specialist professionals.

Unit-linked policies, on the other hand, are life insurance with an investment component. Instead of buying shares in an investment fund, investors buy a life insurance policy that includes an investment portfolio. The value of the policy depends on the value of that portfolio, which is managed in a similar way to an investment fund.

Differences between investment funds and unit-linked policies: The main difference is that investment funds have no life insurance component, whereas unit-linked policies do. This means unit-linked policies offer additional protection: if the investor dies, the beneficiaries receive a set amount. Investment funds, in turn, are more flexible when it comes to investing and withdrawing money.

Importance of investment funds and unit-linked policies: Both products are important because they allow investors to diversify their portfolio and access the financial markets. They also let investors invest in a wide variety of assets without having to buy each one individually.

Taxation in Spain: Investment funds and unit-linked policies are taxed in a similar way in Spain. The returns generated by both products are considered income from movable capital and are subject to a 19% withholding when redeemed or reimbursed. Investors must also declare the returns obtained in their income tax return.

Types of investment funds: There are different types of investment funds, classified by investment strategy. Examples include fixed-income funds, equity funds, mixed funds and passively managed funds, among others.

Risks associated with investment funds and unit-linked policies: Both investment funds and unit-linked policies carry risks. Their returns are subject to fluctuations in the financial markets, which means investors may lose part or all of their investment. It is also important to bear in mind that investment funds and unit-linked policies are not guaranteed by the Deposit Guarantee Fund.