Investment funds can be distinguished, a. According to the nature of the securities and assets in which investments are made. There are, for example, pension, real estate, commodity, money market, mixed and umbrella funds. If a fund mainly comprises securities of different stock corporations, it is referred to as the equity fund.
WHAT ARE FUNDS INCLUDING SHARES?
The fund is an investment instrument in which legal and natural persons collectively contribute money. Fund managers invest the capital of investors in assets, such as securities or assets. A fund is then referred to as a stock investment fund when it contains a large part of individual shares. At least 51 per cent of the securities must be individual securities from the stock market. Equity funds belong to the category of open-ended investment funds. Many investors purchase shares in an investment fund, which is limited to a selection of shares. The issue of the fund shares is not limited, neither in terms of time nor in terms of volume. Because many stocks are bought from different countries, regions, indices, sectors and sectors, investors are taking part in a mix of equity securities, which significantly reduces the risk of investment.
The advantage over an investment in a single share is that it is very unlikely that all fund shares will lose value at the same time. The larger and more established the companies in the fund and the broader the values, the less volatile is an investment in the stock mix. The investment horizon of the investor plays an important role. In many studies, these investment funds have proved to be the best investment in the long term, as the fluctuations in the value of the equity securities over the long term offset each other.
HOW DO THESE FUNDS DIFFERENT?
Equity funds can be divided into active and passive investment funds, country, sector and theme funds. In the case of actively managed funds, professional fund managers decide which shares are acquired for the fund’s assets and when they sell them again. Passive investment funds, which are called ETF’s, dispense with the fund management and make a 1: 1 stock exchange index. Active funds can also be specialized in specific investment strategies and investment styles, for example, investing exclusively in value or growth stocks. Different types of floor coverings can be used to cover different needs. German investors are primarily looking for funds that only contain national equity securities, for example, standard or secondary securities from Germany. The largest risk diversification is achieved by means of a global stock mix of different sectors. Income earned by private investors with equity investment is primarily dividends and share price gains. These are used differently by the funds, either distributed on a cut-off date or reinvested in the investment fund. Thus, a distinction is made between distributing and accumulating equity investment funds, which are also dealt with differently in tax law.
CHANCES AND RISKS
Funds that contain equities can benefit investors from numerous opportunities in the capital market. This is due to the professional expertise of experienced fund managers, which also have to comply with the legal requirements of the German Investment Code (KAGB) and defined investment guidelines regarding the composition of the fund. Thus the issuing capital management company (KVG) requires approval from BaFin and a minimum capital. The fund managers must take into account a minimum spread. For example, they may only invest up to 5 per cent of the value of the fund in securities of issuers, borrow up to a maximum of 10 per cent short-term borrowings and not invest in certain equity funds at all. This extensive diversification ensures a relatively high level of security and the prospects for returns are good in the longer term. Even small investors can participate in the equity market through investment funds with small amounts or regular fines. Equities and the corresponding funds are part of the constantly liquid investments, investors can enter or sell at any time. On a stock exchange, the fund price is published annually and / or annually, so that fund investors are able to understand which investment decisions have been taken.
Equity investment funds, however, also have risks that make the result of the equity investment seem uncertain. Shares are traded on the stock exchange, so that the prices of the securities are sometimes subject to large fluctuations and high losses are possible. Share prices depend on economic, operational, international, political and legal factors. In addition, exchange rates and the psychology of the market participants play a role in the success or failure of a stock investment. The following risks may arise in the case of equity funds:
Risk of price fluctuations
Fund Management Risk
WHICH CHARGES ARE AT ISSUE. SELLING FELLY?
The funds of the funds manage depositaries, the fund shares of the investor are held in a depot at his house bank or another financial institution. Custody fees are charged for the custody of the Funds. The most favorable are online banks, which often do not charge deposit fees. When buying and selling investment funds, exchange charges are incurred, for example, brokerage commissions if the fund is bought via the stock market. KVG charge a front-end load in fund purchase, so each open-ended investment has two prices: an issue price with a front-end load and a redemption price without it. The mark-up is paid as a sales commission to the fund sellers. Through direct banks or fund counters, customers can save or reduce the initial sales charge when purchasing funds. The fund units are sold at the lower redemption price; redemption fees are only required in exceptional cases. In addition to these one-off purchase costs, however, relatively high current fees are a major factor for equity fund investments, which have a negative impact on the return on the investment. These are, on the one hand, management fees for fund management and, on the other hand, transaction costs and performance-related remuneration. Investment funds are comparable with the so-called total cost ratio (TER), which does not, however, contain the latter two cost items.
Equity funds are suitable for risk-conscious investors who are able to cope with price declines both financially and mentally. These investment funds are particularly useful in asset building, long-term investment and retirement provision. However, investors who generally shy away from the stock risk of stocks do not have to forego higher profit chances. As alternatives or additions to equity investments, for example, crowding, crowding for real estate or bond funds with foreign currency bonds are suitable. Private investors can best minimize risks by distributing their capital to different investment classes and financial products.