What is a mutual fund?

Garanti Asset Management is a company making decisions rapidly, capable of reflecting the local and global agenda straight forward on portfolio strategies and, as the most important aspect, capable of acting proactively. You can make use of our experience by choosing among mutual funds of Garanti Securities and Garanti Bank that suits your risk preferences.

What is a mutual fund?

Before defining mutual fund, it is beneficial to clarify what a portfolio is. In its broadest sense, a portfolio is a group of assets owned by an individual or an entity. In its confined (specific) meaning used here, a portfolio is a group of assets composed of capital market instruments and precious metals. Mutual funds manage portfolios consisting of capital market instruments such as stocks,bonds and bills and precious metals on funds raised from the investors. Every investor becomes a shareholder of the fund upon having a participation certificate that represents part of the portfolio managed by the fund.

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How to earn on mutual funds?

You can earn on your fund investment in three ways:

  • Primarily, the fund acquires an income from the securities it owns through dividends and interests. The fund reflects all incomes on the fund portfolio value.
  • The prices of the fund’s securities may increase. If the fund sells these securities with higher prices, it acquires a capital gain. The fund reflects this capital gain or loss to the portfolio value of the fund.
  • If the investment fund does not sell and retains the securities with rising prices, the price of the participation certificates rise. A high total value of the fund indicates that the value of your investment is high.

Consequently, when investors sell their participation certificates, they have their shares in profit/loss that has occurred so far in the portfolio of their mutual fund. In Turkey, mutual funds do not distribute any additional dividend at year ends.

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What is a participation certificate?

Participation Certificate is a certificate that allows an investor to become a shareholder of the fund portfolio. Participation Certificates are like corporate shares. Investors become shareholders of the portfolio of a mutual fund by purchasing a Participation Certificate, just like the shareholders of a company who join a company by purchasing corporate shares. The only difference is that shareholders of a company can participate in the management of their company, while the holders of a Participation Certificate cannot participate in the management of the mutual fund.

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What are the principles of mutual funds?

Principles dominating mutual funds are the following:

The basic principles prevailing the mutual funds are listed below:

Risk diversification principle
Thanks to this principle, mutual funds may disperse the risk to the extent that individuals cannot do personally. Let's assume that you have TL 100.000. You can invest this amount only in a few stocks (because stocks traded in stock exchange are not traded under a certain amounts/lots.). This will increase your risk. For example, the probability of the financial deterioration arises much due to the decrease of 2 companies stock that you purchased rather than the value decrease of the 25 seperate companies of 2 companies the stocks of which you purchased and decrease of the value of their stocks is much higher than the decrease of the values of 25 separate companies concurrently. On the other hand, mutual funds can collect money from thousands of people and create portfolios in values of millions of Turkish Liras. As a result, they have the opportunity to make investment in much more stocks and also other securities, for example in bond and bills, thereby reducing the severity of any impact that may occur due to any decrease of the values of stocks.

Professional Management
Stock exchanges are technical markets that require a certain level of accumulated knowledge due to their nature, and therefore they need to be monitored closely. Naturally, it is difficult for individuals to monitor them regularly, estimate any impact of any development that occur in such markets on the prices of securities and take action timely. On the other hand, mutual funds can have necessary equipment and qualified personnel specialised in stock exchanges because they collect money from in a high number of people and create portfolios in big quantities. As a result, they monitor the developments in the markets, understand their meaning and perform transactions (purchase/sale, etc.) according to such developments.

Management of the Portfolio of Securities
Although mutual funds can make investments in cash and precious metals under certain restrictions, their main objectives are to purchase and sell securities and to earn income from the positive difference between the purchases and sales and from profit margins and interests of the generate securities.

Trusted Ownership
Mutual funds are based on the principle of trusted ownership. Founder of the fund is the proprietor in the principle of trusted ownership. Investors authorise the founder to perform transactions pertaining to the funds. This authority is transferred in accordance with the by-Law of the fund. The founder is obliged to manage or cause to manage the fund in accordance with the fund and by protecting the rights of the investors.

Protection of Property
Although the fund is not a legal entity, the property of the fund is different from the founder. Further, in accordance with the Capital Market Law, the property of the fund cannot be subject to any mortgage or offered as a collateral against any debt or attached by third parties. In other words, the property of the fund is under the protection of law

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What kind of advantages do mutual funds offer?


  • The capital of investor, namely his/her savings, is managed by professional and trustworthy managers.
  • As the securities included in the portfolio of the mutual fund are diversified by means of the instruments such as fixed income securities, stocks, etc., it is possible to minimise the risk.
  • Further, the valuation and control of securities, and the collection of coupon, interest and dividends are fulfilled by the fund management, which relieves the investor of time and resource wasting transactions such as following due dates, collection of payments, etc.
  • The mutual funds also allow you to make investment in the securities with high revenue in which you could not make investment with your little savings otherwise.
  • As the value increases in the fund portfolio are reflected to the portfolio value on daily basis, they allow investors to convert them into cash in whole or in part at any time whenever investors need.
  • They provide the portfolio with time and money saving due to purchases and sales in big volumes.

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What is type of the fund?

Mutual funds may be established in two types: Type-A and Type-B. Minimum 25% of the portfolios Type-A mutual funds on monthly basis consists of the stocks of Turkish companies, whereas there is no such restriction for Type-B portfolios. The important difference between Type-A and Type-B is the fact that Type-A funds enjoy an advantage with respect to taxation.

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What is nature of the funds?

In addition to the categorisation of Type-A and Type-B in terms of taxation, the concept of nature has developed. The objective of this categorisation is to create funds with different portfolio structures, thereby meeting different preferences of investors.

Taking the securities to be included in the portfolio into account, 11 investment funds in different natures have been described, which are Bond and Bill fund, Stock fund, Sector fund, Affiliate fund, Group fund, Foreign Exchange Mutual Fund, Gold and other precious metal fund, Mixed Fund, Liquid Fund and Index Fund.

According to the foregoing, the type of funds gives information to investor about taxation and its nature shows the main assets comprising the assets.

Funds can be founded in the following natures:

The funds that constantly invest at least 51% of its fund portfolio;

  • In public and/or private sector debenture instrument: "Fixed Income"
  • In the stocks of corporations incorporated in Turkey: "Equity Fund"
  • In the securities of the corporations in a certain sector (such as cement, textile): "Sector Fund"
  • In the securities issued by the affiliates of the Founder: "Affiliate fund"
  • In the securities issued by a certain group (such as Koç or Sabancı Group): "Group Fund"
  • In the securities issued by foreign private or public sector: "Foreign Exchange Fund"
  • In the gold and other precious metals traded in the national and international stock exchanges and in capital market instruments issued on the basis of the said metals: "Gold and other precious metal fund".

The entirety of the portfolio

  • Funds consisting of at least any two of the stocks, debentures, gold and other precious metals and capital market instruments issued on the basis of the said metals and value of any one is not exceeding 20% of the portfolio value: "Balanced Fund",
  • Funds consisting of securities with a due date less than 180 days and the average maturity period of its portfolio not exceeding 45 days:"Money Market Fund",

The funds that constantly invest at least 80% of its portfolio

  • In all of securities under the index or part of them as selected by sampling method in such a way that the correlation coefficient (relation) between the value of an index, which is taken as the basis and accepted by the Board, and the unit share value of the fund shall be at least 90%: "INDEX FUND"
  • Funds cannot be included any of the foregoing funds in terms of portfolio restrictions are called "Balanced Income/Balanced Equity Funds".
  • Participation shares of other mutual funds and exchange traded funds are called "FUND BASKETS".

Provided that they are established for a minimum period of six months:

  • Funds under which the fund management undertakes to repay to the investor the whole or a certain part of the initial investment of the investor or an income above the initial investment at a certain due date(s) under the principles set forth in the by-laws and in the commentary, based on an appropriate investment strategy and a guarantee contract executed by and between the Founder are called "GUARANTEED FUNDS",
  • Funds under which the fund management undertakes to repay to the investor the whole or a certain part of the initial investment of the investor or an income above the initial investment at certain due date(s) under the principles of best efforts set forth in the by-laws and in the commentary, based on an appropriate investment strategy are called "PROTECTED FUNDS".
  • Funds with participation certificates allocated to prescribed individuals or entities are called "PRIVATE FUNDS"
  • Funds established with participation certificates to be sold only to qualified investors are called "HEDGE FUNDS".

Subject to the prior consent of the Capital Market Board, funds in any nature in addition to those above can be created by describing in the by-Law of the fund, in accordance with the portfolio management strategies to be adopted.

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Which considerations should be taken into account when making investment in mutual funds?

Risk Level

Remember that you are taking risk when you make investment in mutual fund. It is because the value of the securities that the mutual fund holds fluctuates, so they may increase as well as they may decrease and the latter may cause a loss of some of the money you invest. However, the risk of all mutual funds is not at the same level. Mutual funds may be categorised into more risky or less risky groups of funds.

A measure that may be used for determining the risk levels of different mutual funds is the percentage of stocks in its portfolio. The higher the rate of stocks in the portfolio is, the higher the level of risk is. However, avoiding from making investment in stocks does not mean that the fund has no risk at all. Among the funds making investment in debentures predominantly, funds making investment in debentures with longer maturity periods feature face more risk compared to those making investment in debentures with shorter maturity periods. What else, even these funds may be subjected to loss in value in the periods when interest rates increase.

On the other hand, in general expecting, high revenue means high probability of loss, in other words, high risk. Although risky funds feature higher risk of loss, they may create bigger profit when the markets are going well. Therefore, when we make a selection between different risk levels, the key factor is to what extent we dare to lose to gain more. You should make decision about this factor and select which mutual fund to invest accordingly .

Before the investment, we strongly recommend you to consult an investment advisor and examine investment magazines to determine how the objective and risk of the fund are suitable to your interest.

Historical Performance

In general, all investors should know the fact for securities, especially mutual funds, that any historical performance does not guarantee the same performance of the same instruments in future. Although the historical performance of the fund gives an idea, it is not guaranteed to catch the same performance in future as the past.

Expense Ratios

Expense ratios of funds make a negative impact on the revenues generated by them. However, this does not mean that a fund with a higher rate of expenses will bring worse revenue. Rates of expenses of funds may vary due to different reasons. For example, a fund portfolio may select not to make much purchase and sale after it is created, while another fund may select to make more purchases and sales to obtain more revenue from daily price actions. Naturally, the latter fund shall pay more brokerage fees and its rate of expenses shall become higher. However, the revenue it gains from such trades may cover the expenses with a bigger surplus and therefore, this fund shall get a bigger profit. Again, you are recommended to get information about the rate of expenses of funds before making investment in them.

Things to be learnt

Investors who are intending to make investment in participation certificates of investment funds must have enough information about the followings:

  • Founder of the fund and the nature and type of the funds that the founder manages,
  • Portfolio manager who manages the portfolio of the fund,
  • The portfolio composition and strategy of the fund in the closest date,
  • Historical performance of the funds of the founder and their success level comparing to other funds,
  • Places where the participation certificates can be purchased and sold, trading hours, purchasing and redemption conditions and the number of days before which an order, especially for sales, shall be given.
  • Whether a purchase/ redemption fee applies.
  • The foregoing and any further details if necessary can be obtained from the documents of the fund.

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What is an Exchange Traded Fund (ETF)?

Exchange Traded Funds are those investing in the stocks included in the index taken as basis in equal proportions. They provide the opportunity in investing in all stocks of the index simultaneously. In other words, an investor buying an Exchange Traded Fund (ETF) will have all stocks contained in the index.

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