Investment funds in Mexico: how they work and what they charge
Investment funds pool many people's money and a professional team manages it. What types exist, how to read their share classes and fees, and how they differ from an ETF.
An investment fund pools money from many investors and a fund manager invests it according to a strategy: short-term debt, long-term bonds, Mexican or global stocks, or a mix. You buy shares of the fund, and their price rises or falls with the value of its investments.
Types of funds in Mexico
| Type | What it invests in | What it's commonly used for |
|---|---|---|
| Short-term debt | CETES, notes and bonds maturing soon | Liquidity and short goals |
| Medium and long-term debt | Bonds with several years to maturity | Multi-year goals; they move with rates |
| Equity | Mexican or foreign stocks | Long-term goals |
| Hedge or dollar funds | Dollar instruments | Exposure to the exchange rate |
| Target-date or mixed | A mix that changes over time | Retirement and dated goals |
Liquidity: when you get your money
Each fund states how often you can buy and sell: daily, weekly or monthly, and how many days it takes for the money to arrive (for example "48-hour liquidity"). Short-term debt funds usually have daily liquidity; equity funds, 48 to 72 hours.
Share classes
The same fund can have several share classes (for example A, B-1, B-2, BF, M). They all invest in the same thing, but each charges a different fee depending on the type of investor and the amount invested. Normally, the larger the amount, the lower the fee.
Fees
The most important fee is the management fee, an annual percentage of your balance deducted from the fund's price. In Mexico, many funds charge between 0.5% and 2% a year, plus VAT; some also charge entry or early-exit fees. As we saw with ETFs, a 1% difference a year weighs a lot over the long term.
The prospectus and the rating
Every fund has a prospectus and a key information document explaining its strategy, risks, liquidity and fees. Debt funds have a rating that combines the credit quality of their holdings (such as AAA) and their sensitivity to rates (from 1, very low, to 7, very high). For example, "AAA/2" would be high quality and low sensitivity.
Investment fund or ETF
| Mexican investment fund | ETF | |
|---|---|---|
| How it's bought | With the fund manager or distributor | On the exchange, through a brokerage |
| Price | One per day | Changes during the day |
| Typical fee | 0.5% to 2% a year | Under 0.1% for many index ETFs |
| Management | Often active | Mostly passive |
| Advantage | Small amounts, automatic contributions, daily-liquidity debt funds | Low costs and transparency |
What to check before investing
- That the fund's objective and time frame match your goal's.
- The total fee of your share class, including VAT.
- Its return against its benchmark over several years, not just the last one.
- Its liquidity and whether it charges for leaving early.
- Its rating (for debt funds) and its risk level.
Test what you learned
1. What distinguishes the share classes of the same fund?
- They invest in different things
- The fee they charge by type of investor and amount
- The country they're in
Show the answer
The fee they charge by type of investor and amount. They all invest the same; the fee changes.
2. In a debt fund rated "AAA/2", what does the 2 indicate?
- That it has two managers
- Low sensitivity to rate changes
- That it pays 2% a year
Show the answer
Low sensitivity to rate changes. The scale goes from 1 (very low) to 7 (very high).
3. What usually charges less, in general?
- An active equity fund
- An index ETF
- They both charge the same
Show the answer
An index ETF. Passive ETFs usually charge much less per year.
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Everything in this section is educational: it explains how investing works, it doesn't tell you what to buy.