What are mutual funds?

A mutual fund is a financial instrument where many individuals pool their money to invest collectively. Imagine you organize a financial “potluck” with friends or family for a common goal: everyone contributes a certain amount, and that money is managed by someone experienced for the benefit of all. Similarly, in a mutual fund, the resources of multiple investors are combined into a common pool, which is managed by financial professionals. Each investor owns a proportional part of the fund, represented in shares (also called units or fund shares).

The mutual fund operates like this: the managers (experts who administer the fund) make the decisions about where to invest the collective money according to the fund's strategy and objectives. They can invest in various financial assets like company stocks, bonds (government or corporate debt), real estate, and even a combination of them, depending on the type of fund. For example, a fund could allocate money to buy stocks of many different companies, acquire government bonds, or a mix of both. By diversifying the fund's investments, they aim to balance risks and returns.

Each investor in the fund holds shares that represent their part of the total pool. The value of these shares changes daily based on the performance of the fund's investments. If investments perform well (e.g., stocks rise or bonds pay interest), the value of the shares increases, meaning your money grows. If they perform poorly, the value of your shares may decrease. The advantage is that, by pooling all the money, even with a small contribution, you can be invested in a diversified portfolio that would be difficult to replicate on your own.

In summary, a mutual fund is a collective and professionally managed way to invest. Investors contribute their money to a common fund, and a specialized manager makes investment decisions, with each participant receiving the benefits (or losses) proportional to the amount invested. This structure allows individuals with little knowledge or capital to access investment opportunities that would otherwise require much more money or dedication.

Advantages of mutual funds

Investing through mutual funds offers numerous benefits for the average investor. Here, we highlight the main advantages of this financial vehicle, which has become very popular:

• Diversification: By investing in a fund, your money is distributed across various instruments and issuers. This means you don't “put all your eggs in one basket.” For instance, instead of buying only the stock of one company, with an equity fund, your money is spread across dozens or hundreds of companies. This diversification reduces risk since if one investment performs poorly, it can be offset by others performing well. Even debt funds invest in many different bonds. Achieving such a diversified portfolio on your own would require a lot of capital; instead, the fund makes it possible by pooling resources from many people.

• Professional management: Funds have professional managers backed by teams of analysts and financial market experts. They dedicate themselves to analyzing the economy, companies, and market trends to make informed decisions about the fund's investments. For you as an investor, this means there is someone with experience managing your money. You don't need to be a financial expert to invest, as you delegate those decisions to professionals whose daily job is to seek the best opportunities and manage risks. This offers peace of mind, especially for those who don’t have the time or knowledge to constantly monitor their investments.

• Access to global markets: Through mutual funds, you can access opportunities in different markets and sectors worldwide, which would be complicated individually. For example, you could invest in an international fund buying stocks in the United States, Europe, or Asia, or a fund investing in global real estate, commodities, etc. Funds open the door for you to invest beyond your locality, taking advantage of the global reach of major managers. With relatively small amounts, you participate in foreign markets that would otherwise require significant money and procedures to enter.

• Transparency: Mutual funds are regulated by financial authorities. These regulations require high standards of transparency and investor protection. Before investing, you have access to a prospectus or informational brochure of the fund, detailing its objective, what it invests in, the risks it has, the fees charged, performance history, etc. Moreover, the fund management company must provide you with periodic information about the fund's status: value of your shares, returns obtained, strategy changes, etc. In other words, you know where your money is and how it is being managed.

• Liquidity: Most open-ended mutual funds allow you to withdraw your money relatively easily. If at any time you need to access your investment, you can sell (redeem) your shares and receive your money back, usually within a short time frame (for example, within 24 to 72 business hours, depending on the fund and institution). This makes funds quite liquid compared to direct investments in, say, real estate or term deposits with early withdrawal penalties. While it is recommended to invest medium to long-term, knowing you can exit the fund whenever needed provides flexibility.

• Accessible investment: Contrary to the myth that “you need to be wealthy to invest,” funds often have very affordable minimum entry amounts. You can start with small sums, which can begin from a few hundred dollars. This democratizes investment, as practically anyone can participate. For instance, instead of needing $50,000 to buy a variety of stocks on your own, a fund might allow you to enter with $1,000 and be proportionally invested in that same variety. Additionally, you can make additional contributions gradually (e.g., invest a fixed amount monthly) to grow your investment over time.

• Simplicity: Investing in a fund is relatively straightforward. Once you choose the fund that suits your objectives, investing is as easy as buying shares through your preferred bank, brokerage house, or financial platform. You don’t have to worry about buying and selling many individual assets or conducting complex analyses; the fund takes care of that for you. For the investor, this translates into convenience: with a single decision (choosing the fund), you get a complete portfolio. The information about your investment is consolidated into a single account statement, making it easy to track your results. In summary, it’s a way to invest without complicating your life with extensive procedures and research on your own.

Classification by type of fund and risk profile

Not all mutual funds are alike. There are different types of funds based on the assets they invest in and the level of risk they carry. When choosing a fund, it's important to know its category, as this will give you an idea of what to expect in terms of volatility (value fluctuations) and potential returns. Below, we describe the main classes of funds and their associated risk profiles:

• Debt funds (fixed income): Also known as fixed-income funds, they primarily invest in debt instruments, such as government bonds (e.g., Treasury Bonds) or corporate bonds of companies. These instruments pay interest and have maturity dates. Debt funds are generally considered low risk compared to other types of funds, as bonds offer more stable and predictable returns. The main objective is to preserve capital and obtain moderate returns. They are ideal for investors with a conservative profile or for short- to medium-term goals. However, although the risk is lower, they are not completely risk-free: the value of the fund may fluctuate with changes in interest rates or if a debt issuer defaults.

• Equity funds (stocks): These funds invest in company stocks, which is to say, in the stock market. They are called “equity” because stocks do not guarantee a fixed payment; instead, their return depends on the company's and the market's performance. They have a high risk profile but also a higher potential for returns in the long term. They may focus on a specific index (e.g., the S&P 500) or diverse sectors and regions. Stock prices can rise and fall significantly in the short term, making these funds more volatile. They are often recommended for investors with an aggressive profile seeking long-term capital growth and willing to tolerate ups and downs along the way.

• Mixed funds (multi-asset): As their name suggests, they combine fixed income and equity in a single portfolio. Mixed funds invest in both bonds and stocks (sometimes in other assets as well), seeking a balance between risk and return. There are different types of mixed funds depending on the proportion of stocks vs. bonds they manage; for example, some may be “moderate” with 50% in stocks and 50% in bonds, others more conservative with perhaps 20% stocks and 80% bonds, or vice versa. The risk profile of a mixed fund is medium, as it sits in between the stability of debt and the volatility of stocks. They are a good option for investors with a moderate profile or those looking for a diversified “all-in-one” solution. They can also serve medium-term objectives or those seeking growth but with some protection against significant market drops.

• Thematic or sector funds: These are equity funds (in many cases) that focus on a specific economic sector or particular theme. For instance, there are funds for the technology sector, healthcare, energy, or themes like investments in green/sustainable companies, innovation, real estate (REITs), etc. The idea is to invest in a set of companies linked by that theme. The risk profile of these funds varies according to the theme, but generally, by concentrating in one sector, they can be risky (because if that particular sector does poorly, the whole fund is affected). However, they allow investors to bet on areas of interest or with high growth potential. They are suitable for complementing a diversified portfolio but perhaps not as the only investment, given their lesser diversification by being concentrated in a specific area.

• Hedge funds: We mention this type briefly for a complete overview. Hedge funds are funds with more flexible and sometimes complex strategies. Unlike traditional funds, they can use leverage (borrowing to invest more), take positions in derivatives, short sell (betting against asset price rises), and employ other advanced tactics. Their aim is often to achieve the highest possible return even in adverse market conditions. Their risk profile is high or very high, and due to regulations, they are typically available only to institutional investors or high-net-worth individuals. For the average investor just starting, hedge funds are not a typical or necessary option; they represent a more advanced level of investment.

Who are they suitable for?

Mutual funds can adapt to different investor profiles and various financial goals. Before choosing a fund, it is important to consider what type of investor you are and what your objectives are, as this determines the most suitable type of fund for you. Broadly speaking, investor profiles are often classified as conservative, moderate, and aggressive, each corresponding to different needs:

• Conservative investor: Prefers security over profitability. If you consider yourself conservative, you likely seek to preserve your capital above all, even if it means obtaining modest gains. You are uncomfortable with strong fluctuations in your investment and might need liquidity in the short term. For this profile, low-risk funds are recommended, such as debt funds or some money market funds (which invest in very secure short-term instruments). These funds tend to have more stable returns and lower fluctuations. A conservative investor typically has objectives like maintaining an emergency fund, saving for an upcoming expense (e.g., a down payment for a house in a few years), or simply not taking unnecessary risks with their savings.

• Moderate investor: Looks for a balance between growth and security. If you are moderate, you are willing to take on some risk to achieve better returns than what would be given by just debt, but you also wouldn’t jump into maximum risk. You tolerate some volatility in your investments, understanding it's part of the process to achieve growth, but you seek to limit any large potential losses. For this profile, mixed funds or a combination of debt and equity funds may be appropriate. For example, you could invest part in a fixed income fund and part in an equity fund, or choose a balanced fund that already includes both. Your objectives could be medium to long-term, like saving for your children's education in 5-10 years, accumulating wealth for a future project, or growing your savings above inflation without extreme volatility.

• Aggressive investor: Prioritizes long-term capital growth and is willing to tolerate risks and variability in the short term. If you are aggressive, you understand that more profitable investments typically come with higher uncertainty, and you are willing to see pronounced ups and downs in your portfolio's value in order to achieve a superior return over time. This profile often invests primarily in equity funds and even in specialized or high-potential thematic funds. It might also include some international or sector-specific funds seeking greater returns. The typical objectives of an aggressive profile are over a long term, like building a considerable retirement fund, generating significant wealth, or simply maximizing gains because you won’t need that money in the near future. Although the growth potential is higher, an aggressive investor must be aware that they could face significant short-term declines and needs to have patience and discipline not to panic over volatility.

In practice, many people do not fit 100% into a single rigid category; you may consider yourself moderately conservative, for example. Additionally, the profile can change with age or situation: perhaps when you are young, you are aggressive in growing your wealth, and as you approach retirement age, you become more conservative to protect the accumulated funds. The important thing is to identify your risk tolerance and objectives (time you will need the money, target amount, etc.) to choose appropriate funds. Fortunately, there is a huge variety of funds in the market that adjust to practically any profile and goal.

Key considerations before investing

Before placing your money in a mutual fund, it is worth analyzing some factors and doing your homework. While funds make the process of investing much easier, it doesn’t mean one should proceed blindly. Here are some key considerations to take into account when deciding to invest in a specific fund:

• Fees and costs: Mutual funds charge fees for managing and administering your money. The most common are the management fee (an annual percentage on your invested money that the manager charges for running the fund) and, in some cases, a performance fee (a percentage on profits if the fund exceeds a certain target) or purchase/sale fee (front-end or back-end loads, though many funds no longer have them or are minimal). It is important to review the costs because they impact the net return you receive. For example, if a fund earns 7% in a year but charges a 1.5% fee, your net gain would be approximately 5.5%. Look for funds with reasonable fees and justification for charging them (for example, active management that adds value). Nowadays, there are even index funds or ETFs with very low fees.

• Investment horizon: Ask yourself How long can I leave this money invested? The investment horizon is crucial for selecting the type of fund. If your goal is short-term (less than a year, for example, paying for a wedding, an upcoming vacation, or an emergency fund), you probably want very conservative or daily liquid funds to minimize the risk of loss over that short period. If your horizon is several years, you can assume more risk because you have time to recover from potential market downturns; in that case, equity or mixed funds might be appropriate. Each fund usually indicates a recommended horizon (for example, “investment over 1-3 years,” “over 5 years”), use it as a guide. Investing with the wrong horizon can lead you to withdraw money at a bad time due to necessity, crystallizing losses that would have been temporary.

• Volatility and risk tolerance: Even within the same horizon, different funds have varying levels of volatility. Volatility refers to how much the value of your investment fluctuates in the short term. An international stock fund can vary by several percentage points in a single day, whereas a short-term bond fund might barely move or only slightly. You should be comfortable with the expected fluctuations of the chosen fund. If you know you would get very anxious if your investment drops by 10% in a month, it might not be wise to pick a very volatile fund. Check the risk profile of the fund (brochures typically rate funds from 1 to 5 or 1 to 7 in risk level, for example) and their historical variations. Align risk with your profile: conservatives choose low volatility, moderates medium, and aggressive investors can tolerate high volatility.

• Historical vs. future returns: It is very common to focus on a fund’s historical returns (for example, “this fund gained 15% last year”). While history is useful, you must be cautious. An important saying in finance is: “past returns do not guarantee future returns.” Just because a fund performed well in the past doesn't mean it will continue to do so, especially if market conditions change. When evaluating a fund, look at its consistency over long periods (3, 5, 10 years) and how it performed during tough market times, not just the last year. Avoid choosing a fund just because "it's in fashion" or had an exceptional recent return, without understanding why it succeeded. Sometimes very risky funds top the list one year but plummet the next. Use historical performance as a reference, but also analyze the fund's strategy, who manages it, and whether those gains come from something sustainable.

• Selecting the right fund: Finally, dedicate time to research and compare the available funds before investing. Some points to review: the fund’s objective and investment policy (does it match what you are looking for? for example, an aggressive growth fund vs. a conservative capital preservation one), the risk profile, the fees (already mentioned), the manager's or institution’s history and experience, and details like restrictions or penalties (is there a minimum holding period?, does it charge anything if you exit too soon?). Also, consider the fund's size and liquidity (very small or illiquid funds can be harder to manage). Many investors find it useful to read comments or expert analyses on certain funds, or even talk to a trusted financial advisor who can recommend options based on your profile. Remember that the best fund for someone else is not necessarily the best for you; it all depends on your goals and risk tolerance.

Practical example of how a mutual fund investment works

To better understand the mechanics, let’s look at a simplified example of an investment in a fund and how you might obtain returns. Imagine you have $20,000 available and decide to invest in a mutual fund. Suppose the fund “XYZ Global Equities” has a value of $50 per share at the time of investment (this price per share reflects the value of the fund's portfolio divided by all its shares). With your $20,000, you purchase 400 shares of the fund (because 20,000 / 50 = 400).

Throughout the first year, the fund's investments perform well: stocks it invests in rise and some pay dividends that are reinvested in the fund. As a result, the share value of “XYZ Global Equities” increases from $50 to $55. What happened to your investment? Your 400 shares that were initially worth $20,000 now total $22,000 (400 x $55 = $22,000). You just gained $2,000, equivalent to a 10% return on your original investment in one year.

If you decide to keep your money invested, the compound effect can grow your capital even further. Continuing the example, suppose in a second year the fund grows another 10%. The share value would now rise to approximately $60.5 (because 55 + 10% of 55 = 60.5). Your same 400 shares would increase in value to $24,200 (400 x 60.5), earning an additional $2,200 that second year. Notice that the second year's gain ($2,200) was higher than the first year's ($2,000) even though the percentage return was the same (10%). This occurs because you are earning a return on an already increased amount from the prior year; that is, the gains are reinvested and generate more gains, known as compound return.

Of course, in reality, returns are neither fixed nor guaranteed. One year the fund might rise, another might see a decline depending on market conditions. For example, if in the third year the market falls and the share value drops to $ Fifty-five (imagining a 10% drop from 60.5 to ~54.45 per share), the value of your 400 shares would then be around $21,780. In this case, you would have lost part of the gain (your investment would be worth less than at the end of the second year, although still more than you initially invested). This example illustrates that mutual fund investments can fluctuate, but in the long term, if the fund is good and the market grows, your money tends to increase.

You can also make additional contributions or withdrawals. Continuing the story, suppose that after the first year you decide to add another $10,000 to the fund, taking advantage of the good performance. At that time the share value was $55, so you purchase ~181.8 additional shares (rounding to 182 additional shares). You would now own 582 shares. From then on, your returns will be calculated on that new total of shares. This example shows the flexibility: you can increment your investment as you have resources, and the fund integrates them into the same diversified basket.

In summary, this is how a fund operates: you contribute money, it is converted into shares whose value reflects the performance of the portfolio managed by experts. Over time, that value can grow (or decrease) and you have the freedom to remain invested for long-term returns, add more money, or exit by selling your shares when you need liquidity.

Common myths about mutual funds

While mutual funds are increasingly popular, some myths or misconceptions can still deter people from using them or create confusion. Let's clarify the most common myths:

• Myth: “Mutual funds are only for financial experts or people with a lot of money.”
  Reality: False. Funds were created precisely so that anyone can invest without being an expert or wealthy. As we saw, many funds allow investing with small amounts and you don’t need in-depth knowledge since a professional manager makes the decisions. They are a suitable tool for beginners, small savers, and generally for anyone wanting to grow their money, regardless of their financial experience level.

• Myth: “Investing in a fund guarantees I will always make money.”
  Reality: Not so. No legitimate investment can guarantee profits all the time. Mutual funds invest in real markets (stock exchanges, bonds, etc.) that rise and fall. There will be periods where your fund generates positive returns and others where it might incur temporary losses. It's important to understand that funds, like any investment, involve risk. The advantage is that, if properly managed and diversified, they can mitigate risks, but never eliminate them entirely. Be wary of anyone who paints funds as a sure gain; the reality is they are a good growth option in the medium to long term, but with ups and downs.

• Myth: “It's better to choose the fund that had the best performance last year, so I'll earn more.”
  Reality: Past performance does not assure future performance. A fund that was stellar last year may have taken high risks or benefited from exceptional situations that might not repeat. When choosing a fund, don’t be swayed by just recent performance. It is more important that the fund suits your profile and goals and has a solid, consistent strategy over time. Often it's preferable to have a fund with good but consistent returns over several years than one that was number one one year and then plummeted. In summary: investigate the full track record and philosophy of the fund, not just last year's number.

• Myth: “If I invest in funds, I can't easily withdraw my money or it's frozen.”
  Reality: Most mutual funds offer high liquidity. You can redeem (sell) your shares when needed, and usually within a few days the money is back in your account. It's not like locking the money away. Of course, there are funds with certain restrictions (for example, some specialized funds or real estate funds may have liquidity windows), but they are the exception and you are informed in advance. For common public funds, you have flexibility. However, remember that if you withdraw at a bad market time, you might realize losses. But technically, your money is not “trapped”: you have control and access to it when required.

• Myth: “Investing in a fund is very complicated and difficult to understand.”
  Reality: At first, like any new topic, understanding how mutual funds work might seem complicated. But essentially, as we've explained, it's not that hard: it's about pooling money from many people to let an expert invest it diversely. Today, financial institutions offer clear information, simplified brochures, and even advisors to guide you through the process. Moreover, with technology, investing in a fund has become as simple as making a few clicks on an app. You don’t need to calculate anything complex or deal with cumbersome procedures. Once you take the step and understand the basic concepts (which we hope this guide has helped clarify), you'll see that investing in funds is quite accessible and manageable for anyone.

BlackRock Funds and Their Strategies

BlackRock offers a robust portfolio of investment funds tailored to conservative, moderate, or aggressive risk profiles. Their funds stand out for their focus on global diversification, supported by the Aladdin risk analysis technology and backed by one of the largest asset managers in the world. Below, we group the most representative products as of April 8, 2025.

Debt Funds: Stability with Tactical Vision

• BLK1MAS: invests in short-term debt issued in local currency by the government and corporates. Ideal for daily liquidity with low risk.

• BLKGUB1: focused on government bonds and treasury bills, with a medium-term horizon. Offers security and predictable returns.

• BLKDLS1: dollar-denominated debt with optional currency hedging. Allows international exposure with low to moderate risk.

Equity Funds: Global Growth

• GBM103B: invests in global equities via international markets. High exposure to developed markets like the U.S. and Europe. High risk.

• BLKUSAM: focuses on medium-sized U.S. companies, seeking sector diversification and long-term growth.

Mixed Funds: Balance and Flexibility

• MULTIMX: local strategy that combines up to 70% in debt and 30% in equities. Balances growth with stability.

• BLKMIX: flexible international fund investing in global debt and equities. Adjusts its composition according to the economic environment.

Specialized Funds: Thematic and Indexed Access

• BLKETFM: fund that invests in global ETFs listed on international markets, like S&P 500 or MSCI. Low-cost global diversification.

• BLKESG: investment in companies with ESG criteria. Focused on sustainability with a long-term vision.

BlackRock's strategy is based on a combination of quantitative analysis, active or passive selection depending on the product, and a global macroeconomic vision. Many funds are accessible to qualified or institutional investors and can be acquired through platforms.

How to Invest with BlackRock Funds

Investing in BlackRock funds can be done primarily through Citibanamex (their authorized distributor following the sale of the operator), or directly with the operator for qualified clients. The process is accessible for individuals, although some funds require higher minimum amounts, especially the institutional ones. The key is to know your risk profile and select the fund aligned with your goals.

Steps to Invest with BlackRock

• 1. Approach an advisor at Citibanamex or consult their investment platform.

• 2. Answer the risk profile questionnaire.

• 3. Review the available funds for your profile (minimums starting from $1,000 in some cases).

• 4. Choose the fund and make your first contribution.

• 5. Track your investment through the app or online banking, monitoring performance and reports.

Tips for New Investors

• Start with debt funds if you seek stability and liquidity.

• Consider mixed funds to balance security and growth.

• Explore global funds if you have a long-term horizon.

• Review fees, terms, and currency hedging before investing.

• Consult with advisors if accessing institutional or thematic funds.

BlackRock offers access to a global platform, cutting-edge technology and sophisticated strategies. Whether you're conservative or a global investor, there's a fund designed for you.