Open-end fund

A mutual fund, also referred to as the Fund, is a construct for investment. An investment company ( German technical term: Capital Management Company, before the introduction of KAGB in July 2013: Investment Company ) collects investors' money, it brings together in a special fund - the fund - and invests it in one or more areas of the plant. The shares can be traded on each trading day usually. The money in the fund will be invested according to pre-established investment principles, for example, in equities, fixed income securities, money market and / or in real estate. Investment funds must be observed as a rule when investing the principle of risk diversification, that is, it may not be the entire fund's assets are invested in only one stock or only a property. Due to the scattering of the money to various fixed assets ( diversification) of the investment risk is reduced.

With the purchase of mutual fund shares, the investor is co-owner of the Fund's assets and is entitled to profit sharing and share return at the applicable redemption price. Here the investment company is formally the owner of the Fund's assets and is therefore registered as owner of the property in the land register: For open-end property fund a legal peculiarity applies.

The unit value is calculated by dividing by the number of shares issued upon the value of its total assets. The fund's assets are professionally managed and is under German law special fund, that is, the systems must be strictly separated from the assets of the Company are held. This scheme guarantees the preservation of assets even in bankruptcy of the investment company. The fund increases by new deposits from investors and price, dividend and / or interest gains or falls through reimbursement of shares or losses.

• 8.1 Germany 8.1.1 Government incentives 8.1.1.1 Vermögenswirksame services
• 8.1.1.2 Riester pension with mutual funds

• 8.1.2.1 scheme until 31 December 2008
• 8.1.2.2 regulation from 1 January 2009

History

The first investment respectively. then investment fund that still exists today, was introduced in the USA in 1928 under the name Pioneer Fund. In Switzerland, the former Union Bank of Switzerland ( now UBS ) launched the first fund in 1943, in the very war.

Categories and distinguishing features

Common options for categorizing funds:

• Instruments in which it invests
• Geographic distribution of investments
• Special strategies
• Investment horizon
• Cost structure
• Type of management
• Listing
• Target group (investors )
• Risk structure
• Domicile ( the fund company )
• Special shapes

One of the most common categorization of open-ended mutual funds is in accordance with the instruments in which the Fund invests. The most common tools are: stocks, funds, bonds (bonds ), money market instruments, currencies, commodities, real estate, etc. Therefore, the types of funds resulting equity funds, funds of funds ( investing in other funds ), bond funds, money market funds, open-ended property funds, etc., as used in common Fund rankings are used. In so-called balanced funds is also made ​​to this categorization respect: Mixed funds invest in different asset classes mostly in stocks and bonds.

Another distinctive possibility is the geographical distribution of assets in regions, countries or continents, in which a Fund may invest according to its investment conditions.

Special strategies relate to a certain content- management focus, eg ethical considerations or the reproduction of a particular index. Ethical funds to make their decisions and ethical aspects. They invest for example in wind and solar energy or considering religious precepts. Index funds according to a particular index, such as the DAX; this is done automatically, without active management.

Mutual funds can on the investment horizon ( the fund's assets invested in the short term and is often redeployed or long term investment is made) will be sorted. There are mutual funds with short-term, medium-term or long-term investment horizon. The investment horizon is relevant by analogy to the temporal plans of the investor.

A typical example for the funds that are particularly suitable for long-term investors, are open-ended property funds. In contrast, for example, many money market funds can be well used to "park" money in the short term only. Term funds are temporary and are resolved at the end of the term.

Also, open-end funds differ in their cost structure (see costs). There are no-load fund (premium). These are often performed under the name Trading Fund ( also called No Load Funds ). These funds typically have higher annual management fees. On the other hand, there are funds with front-end load ( max. 5 % to 6 %), these are sometimes referred to as the Classic Fund ( CF) or Class A Shares. A special feature in this context Multiclass Fund represents a multi- class fund has multiple share classes, all of which have their own cost structure. However, all classes of multiclass funds invest in the same stocks.

A further distinction is the way the fund is managed. In an actively managed fund managers decide which securities or other assets for the Fund to be purchased. You try it, " picking" within the investment conditions possible profit promising plants. The increase in value of the Fund depends here crucially on the assessment and the skills of fund management. In so-called passively managed funds, however, a particular index is replicated exactly, or the investment of the fund assets is based on fixed formulas. This lower cost is possible because the fund manager is less expensive. On the other hand, in contrast to the active management is no way to " cherry-picking ". Another subset of the management type form multi-manager funds. These are managed by different managers, which risks should be further reduced.

You can open funds also differ according to whether they have a listing ( " Exchange - traded funds ," short ETF) or not. If fund shares may be traded on the stock market, they have a greater fungibility. This means that you can buy and sell easily. Outside the market shares of the investment company directly or through banks or financial sales can be purchased (see purchase of fund shares ). If you want to sell the shares back, usually only the return on the investment company comes into question. The resale of shares to another person is permissible; in practice, however, this occurs very rarely.

Another classification ability are the target group of investors for whom a Fund will be launched. Special funds are loud Investment Act funds, which will be launched exclusively for legal entities, institutional investors such as insurance companies, foundations or banks. "Natural persons ", ie individuals are allowed to purchase any shares in this fund. In contrast, mutual funds are funds whose shares may be offered to small investors to buy.

For classification by risk of funds will exist as subcategories of open investment funds such as Hedge funds and guarantee funds. Hedge funds ( official name: " funds with additional risks " or " funds of funds with additional risks ") may be issued in Germany only since the beginning of 2004. However, shares in single hedge funds are not distributed to the public. This is only possible with funds of hedge funds, so in funds which in turn re-invest in shares of various single hedge funds. With the guarantee fund to investors, the investment company or a third party promises a certain minimum income from the fund investment, such as the preservation of capital by a given investment period.

Mutual funds can be further distinguished according to the country in which they were launched. In Germany not only German fund will be available, but also a variety of interests in foreign fund products, especially from Luxembourg. In this case, only the public sale of holdings in Germany is regulated by the German Investment Act and is regulated by the BaFin. The foreign funds, however, is designed according to the rules of his native State, and is under the supervision of the authorities there.

Finally, new types of open-ended mutual funds will always arise, which develop due to innovation or legal framework. An example of the latter are pension funds. This AS funds to contain at least 51 % shares and shares in open-ended real estate funds. They are, as the name implies, typically implies a long-term savings plan of the investor to private pension schemes.

Costs

The cost of a fund consist of the following items:

• Fee and / or redemption fees,
• Management Fee, the Investment Company
• Where appropriate, performance-related remuneration of the Investment Company,
• Custodian fee.

In determining the issue price for new Shares of investment companies expect the share value usually add an initial charge. The surcharge is calculated in% of the unit value. If, for example, the percentage value of 100 € is and the entry charge is 3%, the investor pays for a share € 103. Of this, € 100 and € 3 in the Fund to the Investment Company or their distribution. The issue premium is basically a fee for the distribution of Shares dar. Frequently, the issue premium of equity funds and real estate funds at 3% to 7% in bond funds at about 3% and in money market funds at 0 %. In direct sales via the Internet is partially waived sales charges, in which case the management fee of the Fund may be higher. In the administrative fee is, among other things included a trailer commission by the fund itself discounters substantially.

If the system conditions of a fund provide deferred sales charge at redemption of fund shares in the investment company is a kind of " reverse sales charge " is calculated: If the unit value eg 100 € and the exit charge is 3%, gets the investor for his share only 97 € paid. € 3 remain in the fund assets and are mostly used to cover transaction costs in connection with the redemption of units. This redemption fee is called in the jargon a "deep discount ".

The annual management fees of the Investment Company set their remuneration for the management of the Fund; they are generally from 0.1% to 1.75%, which is calculated from the net asset value of the Fund and are taken from this. The annual management fees of index funds is on average only about 0.45 %.

In some funds, the investment conditions currently see special incentive fees for the investment company in addition to the management fee. These performance bonuses receives the investment company of the fund's assets only if specified events occur, such as surpassing a certain scale comparison ( benchmark) or achieve a certain profit for the fund.

In Germany, as in many other countries - prescribed by law that the assets of a fund must be deposited with a custodian bank. The Custodian will charge the Fund for an annual fee, the calculation is regulated in the plant conditions. It is most often calculated as a rate per thousand of total.

Finally, the plant conditions may provide that certain costs incurred by the Fund, may be paid by the investment company separately from the fund's assets. This can be, for example, to the salary of the auditor for auditing the annual report of the Fund.

Any restructuring of the fund 's assets also generate transaction costs. For equity funds, going from an average annual turnover ratio (PTR - Portfolio Turnover Ratio ) of 1.5. Since the bank, which performs the transaction and receives fees, often part of the Group of the investment company, conflicts of interest may occur if too many conversions are carried out or the agreed rates are excessive.

For index fund reallocations are required only if the composition of the underlying index changes or the fund manager must respond to inflows or outflows. With index funds, you therefore based on an average annual turnover ratio of only 0.2.

The key measure to assess the fees of the fund company as a whole ( excluding sales charge) is the total expense ratio (TER).

Cost transparency

The costs are more transparent than with certificates and life insurance. The maximum amount of the management fee and custodian fee are already defined in the contract terms, as is a list of costs that may be paid out of the Fund's assets. In the annual reports of the specific amount of fees and costs actually incurred is reported accurately. In contrast, the costs of certificates for an investor are not visible because they will be retained by the issuer as the difference between the issue price and a fair market value equal to at issuance of certificates and published at any point. Even with life insurance contracts, there is a lack of even a semi- comparable transparency.

Purchase of fund shares

The following possibilities exist for the acquisition:

Advantages of mutual funds

Through investment funds and retail investors can invest in assets and markets that otherwise remained closed to them. Investment in mutual funds is possible with savings plans from about 25 € per month, as well as one-off investments. Due to the bundling of many may very small investment amounts in the fund, it may occur in the financial markets as a major customer. The investment company may then negotiate more favorable conditions and economic and invest cost -effectively than (small) investors would be the individual possible. In addition, investment companies, etc. pursuing the selection of assets, monitoring of markets and professional investors to benefit from it without having to even acquire such expertise.

Since investment funds must comply with the principle of risk diversification, the investment risk is lower than with a direct investment in a single asset.

Fund shares may exchange day at the unit value in the rule ( if necessary, less a redemption fee, see expenses) will be returned to the investment company. That is, the investor can " opt-out" again quickly and easily when he needs money or think you have a better form of investment found.

As investors funds belong to a special fund and are not part of the assets of the investment company, investors' money is even safe in the event of bankruptcy of the investment company or custodian bank. In the event of insolvency of the Investment Company, the custodian bank takes care of the liquidation of funds and the immediate disbursement to the shareholders. Funds are subject in Germany to government approval and supervision by the BaFin. Hardly any other type of investment is as safe and well monitored in this regard.

Disadvantages of mutual funds

Contrary to the roused by investment companies exceeds expectations only less than a quarter of all actively managed stock fund its respective benchmark. The so-called window dressing leads to disadvantages for investors. These disadvantages do not apply to the index fund.

According to § 32Vorlage: § / Maintenance / buzer Section 1 Investment Act, the Investment Company shall exercise voting rights on the fund's shares. So fund investors have no opportunity to participate in general meetings of joint stock companies and to exercise voting rights, even though they are co-owners of the shares. However, § 32Vorlage: § / Maintenance / buzer Section 1 of the Investment Act to see not only as a disadvantage. Because for a fund with many thousands of investors who do not know each and which need not be known to the investment company, it would practically be hardly possible to agree before any general meeting on how to be tuned.

In the foreground, but there is a risk associated with the Fund's investment in certain assets, or the specific risk potential of the sector, in the Fund invests. If a Fund in accordance with its investment conditions and its prospectus focus on investing for example in European equities, investors are exposed to the appropriate market risk. Decrease in the prices for European equities, the reduction in the value of their Shares.

Another disadvantage of mutual funds is the fact that the individual investor - at least in public funds - are not entitled to personal information, or the investment company has on the Fund. Law and literature assume that individual investors can not demand to know about the fund more than the investment company must disclose by law in the contract terms, sales prospectuses and reports. The idea is that all investors in a fund should be treated equally, and that the Investment Act, an "information package" defines the period attributable to all investors. Therefore, it is an investor in particular impossible to know the costs incurred in a fund over a given period transaction costs, he may have thereto ever so legitimate interest. The German court practice shows that, inter alia, the wording of § 41Vorlage: § / Maintenance / buzer Investment Act is interpreted as an argument against a claim by the investor to access, also supported by the literature review. Accordingly, no case is known in which an investor could erstreiten this information successfully. This means that an investor has little opportunity to check whether a disappointing performance of its fund shares is due to excessively high transaction costs.

Another disadvantage is that an exit from a mutual fund is difficult or leads to disadvantages if too many other investors also want to redeem their shares. These return requests can always be contested only from the liquid assets of a mutual fund share. Decreases the liquidity ratio due to too many redemption requests under a certain amount, the investment company shall be entitled and obliged to suspend the return and liquidate other investments generally. This can, however, especially when time pressure exists, or non-exchange traded daily asset components such as Property, loss to the Fund and hence for all shareholders represent. Especially with real estate assets is here added the fact that they were often not only financed from the fund assets, but additionally also use bank loans to pry the return. To an early sale often results in such a case to interest compensation obligations to the bank and thus to additional losses for the investors. It may also be that investment units are not regularly rückgebbar in such a case for years and can only be sold on the open market, often with substantial price reductions.

Sales documents

Mutual funds must annually prepare an annual report and semi-annual semi-annual report. For each mutual fund, a prospectus must be made available, the information, including the investment principles and costs. Some funds have even have two brochures: a " simplified " and a " detailed". The current annual report, the Prospectus and the semi-annual report (if it is more recent than the annual report ) must be offered to a potential buyer. The funds, which create a simplified prospectus, only this must be offered. If required by the (potential) investors him but also the other documents shall be made available for free.

Rating of Funds

The historical performance of individual funds is assessed by rating agencies.

Legal foundations

Germany

The legal basis can be found since July 22, 2013 Investment Code ( KAGB ) (formerly the Investment Act ) and the Investment Tax Act. From the previous investment companies ( KAG ) capital management companies were coming into force of KAGB ( conventional ballasts ). These differ according to the type of managed investment assets in mutual and special funds as well as UCITS and AIF CCG CCG. In all cases, the fund's assets open-ended fund is separate from the assets of the capital management company. It remains to investors retained even when insolvency of CCG. The funds issued in Germany as well as the public distribution of foreign investment funds in Germany are subject to supervision by the Federal Financial Supervisory Authority ( BaFin).

Government incentives

Vermögenswirksame services

The state helps employees build a fund deposits with financial incentives. Who invests its capital accumulation benefits (VL ) in VL save for authorized funds can receive a savings bonus of up to 80 € per year ( = 20% of 400 € ). Under certain conditions ( eg, at least 60 % equity share ) to come fund of funds and mixed securities and real estate investment fund to benefit from the promotion. The income limit is 20,000 € and 40,000 € for single persons for jointly assessed. If the taxable income below these limits, we get the allowance. (04/ 09)

Riester pension with mutual funds

In the Riester pension particular, offered by investment companies, credit institutions and insurance products are promoted, from which flows from the age of 62 or starting a retirement pension of the investor in a lifelong monthly income.

When investing in mutual funds a payment plan with fixed and variable payments can be agreed. You can use up to 30% of accumulated capital will be paid at the beginning of the payout phase. All funded facilities must be undertaken to ensure that at least the amounts paid will be paid back. Whether the pension products offered meet the prescribed eligibility criteria shall be confirmed by the Federal Financial Supervisory Authority before bid beginning.

Investment funds are under the Riester pension used both directly and indirectly (through unit-linked products ). The offers of investment companies combine the high-yield investment in equity funds with which even short-term value stable investment, for example in bond funds. The shares ( funds) share in a Riester fund offer may be determined by the age of the investor. In this case, the rule of thumb is " The younger the investor, the higher the equity component ". Managed fund savings plans may also provide that the equity component as a function of the current market situation varies. In this case, the age of the feeder does not matter.

A choice of concepts, in which the actual fund selection is made exclusively by the investment company, as well as deals in which the investor can influence the specific fund selection. This takes into account the different needs of investors. The actual selection of a Riester fund product should be used in a conversation with an investment advisor.

Requirement for government funding is always the guarantee of a lifelong annuity. Since the biometric risk of longevity can not be supported by investment funds committed to the BAFIN the provider for any additional pension savers to conclude a contract. The contributions of this are taken with retirement from the accumulated capital. The contribution amount is uncertain. The annuity payments from the insurance contract typically begin with the age of 85.

Tax Aspects

The taxation of investment funds is determined by the Investment Tax Act:

Scheme to 31 December 2008

As far as mutual funds, the requirements of § 5 InvTA meet ( publication requirements, so-called full transparency), dividends and retained earnings of the fund are tax law always treated as if they had the Shareholder generated directly themselves. Specifically, the following applies:

• Ongoing investment returns, especially interest income and dividends are allocated to the investor at year- end and are taxable for him, even if they are not distributed.
• Extraordinary gains, especially gains that are realized at the level of the Fund are always tax- free even when sold within the one year period for private sale transactions; this applies to private investors both in the dividend and in the case of reinvestment of capital gains.
• The redemption or sale of investment units held by the investor in the private fund, the Income Tax Act 23 ( holding period of less than one year ) a taxable event only under the conditions of §. According to § 8 para 5 InvTA the half-income method is not applicable to the sale or redemption of investment units of private wealth.

Depending on the investment strategy and portfolio structure, the income of an investment fund to 100 % may be taxable or even 100 % tax free. The former is mainly for money market and bond funds, the latter rather more speculative equity funds.

Scheme from 1 January 2009

The gains distributed by the Fund from the sale of acquired after 31 December 2008 securities ( eg fixed-income securities, equity securities and certificates ) are independent of the holding period taxable investment income and subject to withholding tax. Gains from the sale of acquired before January 1, 2009, securities may continue to be distributed tax-free to private investors. Where the securities capital gain realized by mutual funds are reinvested, however, they are at the level of the investor still not taxable.

Profits from the sale of acquired after December 31, 2008 Fund shares belong to the taxable capital income and subject to withholding tax. Profits from the sale of acquired before January 1, 2009 Shares remain tax-free outside the taxable period of one year.

Austria

In Austria, legislation carried last through the Investment Fund Act ( InvFG) 2011. Risk diversification and complex composition are required by law in Germany and Austria.

Switzerland

The Federal Act on Investment Funds ( Investment Fund Act, AFG ) has been replaced by the now relevant Federal Act on Collective Investment Schemes of 23 June 2006 (Collective Investment Schemes Act, CISA ) on 1 January 2007.

Abbreviations:

• KAG: Federal Act on Collective Investment Schemes
• LPCC: Loi sur les fédérale placements collectifs de capitaux
• CISA: Collective Investment Schemes Act

In some cases, the term collective assets is used. A collective assets may also be that the available assets due to a collection for the benefit of a charitable purpose.

Liechtenstein

In Liechtenstein, the legal regulation is carried out by the Law on Investment Undertakings ( IUA ) of 19 May 2005. Supervision is ensured by the FMA Financial Market Authority Liechtenstein. The regulation meets European standards.

The IUA has three types of funds:

• Investment undertakings for transferable securities (or investment fund) are in accordance with EU Directive 85/611/EEC ( as amended by Directives 2001/107/EC and 2001/108/EC ) designed to meet all the requirements of the protection of investors and feature due to Liechtenstein's membership in the European Economic Area ( EEA) on the European passport - they are also referred to as a UCITS or UCITS.
• Investment undertakings for other values ​​are regulated by the national law of Liechtenstein Fund (IUA ). Funds of this type are regulated very liberal and subject only to the essential requirements of diversification and investor protection - but also allow the mapping of individual investment objectives. A subcategory provide investment company is at risk - here takes place the regulation of hedge funds and other alternative investments.
• Investment company for real estate play today in Liechtenstein not matter - currently this type of fund is not used.

The three types of funds can be placed into two types:

• Investment funds (contractual form as a collective trusteeship (no unit trust ), called in Luxembourg also FCP)
• Investment company ( corporate form, in Luxembourg SICAV or SICAFs also called ).

Closed Investment Fund

The counterpart of mutual funds are closed-end funds (English closed-end funds ). Since the introduction of the Investment Code ( KAGB ) in July 2013 it is the first time a uniform legal basis for open and closed-end funds. This also managers of closed end funds must meet the same legal principles that apply to open-end funds.

Ombudsman

For complaints relating to mutual funds and other disputes with respect to the investment code, consumers can contact the Ombudsman's Office in Germany for investment funds of the BVI Bundesverband Investment und Asset Management.