Posted in Finance, Accounting and Economics Terms, Total Reads: 351
Definition: Regional Fund
A regional fund is a particular type of mutual fund that has its investment specifications in such a way that all its investments in securities belong to only a particular region .This regional strategy could range from continents to regions with specific risk-return characteristics such as Asia or Africa or Middle East or Europe or Emerging Markets etc. Within that specified geography the regional fund has a diversified strategy of investing across various companies in sectors such as Manufacturing, Energy, IT, Pharma etc. However, it is necessary that they need to be diversified across sectors since there are some regional funds who have investments only in a specific sub sector such as Energy of a specific region say Middle East.
Since retail investors most often do not have the resources to invest across various geographies because of the information asymmetry and the need to keep updated about that specific regions’ economic situation they are not able to diversify sufficiently to reduce their risk. Regional funds help to fill this void to some extent as they provide the opportunity for investors to invest across various regions and diversify their portfolio of investments without having to invest much capital and without need to keep learning about the economy as the fund will take care of it and thus substantially reducing their risk.
Regional funds generally select the specific regions for investments after scrutinising the regions for many criteria. They are quite different from International funds which invest in securities that span across the globe or Country funds that invest in securities in a particular country.