What are investment funds?
An investment fund comprises the special assets (investor deposits) managed by an investment company (KVG) where these are placed in securities, such as shares and bonds, and deposited with a custodian bank. Depending on the principle of risk diversification, the fund manager creates a portfolio to suit the strategy and objectives of the investment, aiming to achieve a maximum yield with the corresponding level of risk.
How they work
An investment fund can be thought of as a large pot with a large number of investors paying in different high amounts. This ‘pot’ is administered by a fund manager in line with the principles of risk diversification: money is invested in a range of securities investments in accordance with the defined strategy (shares, fixed-income securities, money market certificates, real estate, etc.). Each investor has a certain number of shares in the pot (referred to in legislation as ‘special assets’), depending on the size of the deposit. The total sum of the special assets (‘fund volume’ or ‘NAV’ – net asset value) therefore rises when investors place new deposits and when profits are earned, and it falls when shares are redeemed or a loss is made. The exact legal requirements concerning investment funds are set out in the German Investment Act (KAGB).
Investment funds offer many benefits and are easy to manage for individual investors. The main benefits of funds are as follows:
- Professional management – investors benefit from the professional expertise of fund managers and the extensive research and analysis options open to investment companies, which open the door to all markets, industry sectors and companies around the world.
- Risk diversification – limitation of risk thanks to a broad spread of risks across a large number of different securities as well as investments in different markets, industry sectors and countries.
- A high level of investor protection – as special assets, investment funds are fully safe from bankruptcy. Legislation is in place to ensure that, in the event of an investment company or custodian becoming bankrupt, the special assets are not included in the bankrupt estate, but remain as independent funds. This means that such assets do not depend on the financial position of the investment company or the custodian bank. A strict legal regulatory framework and product-specific investment guidelines assign investment funds a high grade of security.
- Transparency – publication of up-to-date fund prices and performance on every trading day in numerous media formats. Daily availability of funds (on trading days) with no period of notice offer liquidity and flexibility.
Besides the benefits of investment funds, we would also like to point out the risks associated with them, which as a rule apply to all investment products available on the capital market.
- Country, currency and credit risks associated with the issuer - investment funds invest the monies entrusted to them in securities, among other things, issued by a wide range of entities (countries, companies, banks, etc.). This can be associated with specific risks. As mentioned above, the overall risks are minimised as far as possible by spreading the investments widely.
- Market risks - share prices and prices of bonds can fluctuate widely depending on the market.
- Historic performance - growth achieved in the past is not a guarantee for the future success of an investment.
- Costs - the performance of a fund is negatively affected by one-off and/or recurring costs (e.g. initial charge, management fee, depositary bank fees, transaction fees).
Funds allow each investor to find an individually tailored solution. And because personal circumstances can change, investments in funds can be adapted to suit the current situation at any time and with no red tape. For detailed information about the precise focus and direction of DJE funds, please refer to the corresponding factsheet on the website or take a look at the prospectuses available in the download area.
It is possible to place money in an investment fund directly with an investment company, at a bank or building society, or through a financial advisor. Of course, you can also seek personal advice. We would be pleased to forward your enquiry to an independent investment consultant in your area, who will then contact you personally without delay. Simply use our contact form – we look forward to hearing from you.
Sources: BVI, fondsweb.de, DJE Kapital AG