Also called a strategy, investment policy determines the way a mutual fund invests. The investment policy determines the goals, the way and is directly related to the level of risk that we determine for a certain mutual fund. The higher the risk, the more dynamic the investment policy. According to its investment policy, the mutual fund can determine the ratio in which to invest - for example, 70% in bonds and 30% in shares. This ratio is not fixed and can vary within certain limits depending on the economic and market situation. Investment policies are often grouped according to the type of investor for whom they are suitable:

• highly conservative funds most often invest mainly in cash and cash equivalents. Historically, the yields of highly conservative funds have been below the inflation rate, which is where their weaker popularity comes from.

• conservative funds they invest mainly in government and corporate bonds, but can also invest a small portion of their portfolio in stocks of larger, well-established companies known as blue chips. Historically, the yield of conservative funds has been around or slightly lower than the inflation rate.

• defence funds invest mainly in government and corporate bonds, but can also invest a moderate portion of their portfolio in shares of larger, well-established companies known as blue chips, often with a large proportion of these companies in defence sectors such as the food industry, pharmacy, utilities (electricity, water, gas, etc.) and the mutual fund may use risk hedging. The goal of defence funds is a moderate return at a lower level of risk as historically the return has been around or slightly above the inflation rate.

• dynamic funds invest mainly in shares, but can also invest a smaller part in bonds, with the goal of potentially higher returns at a higher level of risk. Due to the higher share component, the return on dynamic funds has historically been above the inflation rate.

• highly dynamic funds invest almost entirely in shares, but a small part of their portfolio can also be invested in bonds, often with higher return (mainly issued by companies or with a lower credit rating). Many of these funds invest only in shares. The goal before them is maximum return as the level of risk is high and for this reason often the indicative investment horizon is at least 5 years.

Example:

Ivan Petrov realizes that by keeping his money on deposit he does not receive any interest, and taking into account the effect of inflation, he actually loses. He begins to look for a solution to what to do so as to protect himself from this serious problem. He focuses on a mutual fund because he does not have the necessary knowledge, time and experience to invest in the capital markets on his own. Looking at his savings, he sees that he has BGN 25,000 on deposit. He estimates that he will probably need BGN 5,000 for the planned renovation of his apartment, which he will do in 1 year. He estimates that he will not need the remaining BGN 20,000 in the next 4 years. Since investing is something new to Ivan, he prefers to consult an expert and get investment advice. After the expert made sure that he was aware of Ivan's goals and expectations, he recommended that Ivan leave BGN 5,000 in deposit in order to cover the costs of the planned renovation, and to invest the remaining BGN 20,000 in a mutual fund. The expert recommends a mutual fund whose investment policy is of moderate risk, as the fund invests mainly in bonds and more moderately in shares, and the recommended investment horizon is indicated as 3-5 years. All this information is available in the documents of the fund, which describes its investment policy. Combining the goals of the fund - its investment policy and the recommended horizon with the client's goals, the expert provides quality advice so that the client will feel comfortable knowing that he has not taken unnecessary risks and that the investment is in line with its goals and expectations.