This thesis describes the investment fund industry in the Europan Union markets, classification of funs, their business models, investment risks that occur and the European Union regulatory framework which regulates operations and investment products. The main aim of thesis is to give a closer look of innovations and key market trends that are shaping the investment fund industry in the European Union. Furthermore, thesis points out the potential of innovation development in the Croatian investment fund industry, and presents threats and open questions from a critical standpoint. Next, thesis provides valuable insight into new trends and products which are reshaping the investment fund industry such as sustainable investment funds, maturity funds, role of investment funds in microfinance, digitalisation of business operations, and tailor-made financial products. The sustainable finance regulatory drivers of change in the investment fund industry in European Union come from the Action Plan of the European Commission for the financing of sustainable development and the EU taxonomy for sustainable activities. The driver of the digitalization trends in the industry is the use of artificial intelligence.