What are investment funds?

An investment fund comprises the 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. The fund manager creates a portfolio to suit the strategy and objectives of the investment fund, aiming to achieve a maximum yield within the tolerated level of risk. He or she pays attention to appropriate diversification and the other aims set out in the documentation of the fund.

How they work

An investment fund is like a large pot with a large number of investors paying in different 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).

Opportunities

Investment funds offer many benefits and are easy to buy, sell and keep track of 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 tools avaiable to asset managers. Fund managers monitor and can buy securities in a range of markets, industry sectors and companies around the world.
• Risk management- in a fund, risk is reduced via diversification of assets. The investments are spread across different types of assets, markets, industry sectors and countries.
• A high level of investor protection - investment funds are safe in the event of a bankruptcy of the fund management company. Legislation ensures that the shares of a fund are defined as "special assets" and are therfore 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 level 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.

Risks

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 and returns are not guaranteed.
• 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, custodian bank fees, transaction fees).

Funds allow people to invest in one or several strategies that match their goals and risk tolerance. If personal circumstances change, investments in funds can be adapted quickly and easily. For detailed information about the focus and aims of DJE funds, please refer to the corresponding factsheet on the website or take a look at the prospectuses available in the download area. Funds can be acquired at banks or building societies, via online-brokers, directly via asset managers or through a financial advisor. It is also possible to receive advice in person before making an investment decision. We would be pleased to forward your enquiry to an independent investment consultant in your area, who will then contact you personally to arrange an appointment. Simply use our contact form – we look forward to hearing from you.
                                                                                                                               
                                                                                                                                                  Sources: BVI, fondsweb.de, DJE Kapital AG