Investment funds play a key role in the Croatian financial system, providing retail investors and individuals with access to investments that would otherwise be unavailable, with a high degree of security and a lower risk of loss. The Croatian Financial Services Authority (HANFA) plays a key role in protecting investors by ensuring compliance with regulations and standards. There are several types of investment funds in the Republic of Croatia, with opened and closed-end funds being the most common. In open-end funds, the invested funds can be withdrawn at any time, while in closed-end funds the number of units is limited and the withdrawal of funds is restricted. The aim of this paper is to analyze the importance of investment funds in the Croatian financial system by analyzing their presence in the capital market, investment structure, net asset value and comparison with other investment options. The results of the work show that in the period from 2014 to 2022, the value of total net assets of investment funds in the Republic of Croatia is increasing, as well as the return of all types of investment funds. The research results show that the majority of investors' financial assets are invested in bank deposits (more than 80%) and only a small part in investment funds (less than 1%). This could indicate insufficient financial literacy about investment options, mistrust of investment funds, or the presence of risk aversion. The increase in investment by investors in investment funds in the domestic financial market contributes to the development of domestic companies, which in turn helps to develop the financial system and increase the efficiency of the whole economy.