Investment funds, their foundation and development in Serbia, as a country with transition economy, should be viewed in the context of overall economic reforms, which are necessary for these kind of countries, to enable them to emerge from decades of stagnation and poverty, and create conditions for establishing an open market economy. Only within financial reforms, investment companies provide a significant contribution in the improvement of the national economies of the countries in transition. Through knowledge of their managers and scope of resources they possess, they have greater opportunities than individuals - from quality and professional market analysis, to the dispersion of risk by investing in various securities. This paper presents the impact of investment funds as institutional investors on financial market development, as well as their role in the privatization process and points out the problems and possibilities of development of investment funds in the countries in transition.