Investing in investment funds: To many savers, this still sounds exotic and is viewed as something exclusively for speculators. But this is by no means the case with fund investments.
The most important facts at a glance:
There are funds for every investor type – from extremely risk-averse to risk-tolerant individuals.
1. What is a fund?
An investment fund collects money from investors. This capital is then invested on the financial markets by the fund manager for the investors. The major benefit of a fund lies in risk diversification. A fund does not merely invest in a single equity (equity fund) or a single bond (bond fund) – something that should certainly be avoided by investors –, but rather in many. In the case of an equity fund, investors can benefit from the positive performance of equities and dividend payments.
2. How can I invest securely? Could a fund be a solution?
In the vast majority of cases, investing money entails risk. This is ultimately also true for a savings account. Rule of thumb: the greater the risk, the greater the interest paid. The level of risk can be mitigated, for example, by investing in several equities. The principle: the losses from one investment can be offset by the gains from another. A fund that invests in a large number of vehicles can therefore help to make your investments more secure.
3. What if the fund company goes bankrupt? Are the savings lost?
The money invested by investors in a fund is classified as so-called special assets. Should the fund company go bankrupt, it is protected.
4. What does a fund cost?
Nothing comes for free – and this also applies to fund investments. The service offered by fund companies has its price. This includes a one-time issuing commission for the distribution as well as the levying of a redemption fee in some instances and administration costs. While this might sound dramatic, it is not the case. In many instances, discounts are available on the issuing commission. Redemption fees are very rare. Administration fees are charged annually for the management of the fund.
5. What is fund saving?
In principle, fund saving is no different to normal saving. In this case, the savings amount is transferred to an investment fund – and not, for instance, to a savings account. Step by step, the investor invests in the equity market, for example. The advantage: the saver invests in a disciplined manner, i.e. continuously and not only when everyone else is buying and prices are especially high. Over the years, these regular purchases usually give rise to an attractive average price that can lead to a higher final return.
6. How do equities work? Is this something a fund investor needs to know?
Fund investors do not need to know how an equity works in detail. They should know that equities are an investment option, and that over the long term they offer interesting potential returns. The rest – namely the finding, purchasing, monitoring, and selling of the equities – is taken care of by the fund manager.
7. What is the best way to invest money? Is a mixed fund the right solution?
Mixed funds that are permitted to invest in equities, bonds, currencies, commodities, and real estate (simultaneously) are a very flexible investment product. Investors enjoy an all-round service, and their savings are invested in a wide range of markets. This ensures broad risk diversification and the opportunity to participate in the investment opportunities presented by various markets.
8. How do exchange-traded funds (ETFs) work, and how do they differ from active funds?
An exchange-traded fund, or ETF for short, is an index fund traded on the stock exchange. With this kind of fund, the fund manager merely replicates an index, for example the Swiss Market Index (SMI), on a one-to-one basis. In the above example, the fund would largely perform in line with the SMI. Their simple structure makes ETFs very cost-efficient. However, an ETF can never perform (significantly) better than its underlying index over the long term. In contrast, the fund managers of active funds analyze the markets and seek out the best opportunities, allowing them to buy or sell accordingly. If they expect a decline in prices, they can, for example, increase the fund’s cash holdings (cash allocation).
9. Is a fund unit similar to an equity?
A fund unit is the smallest portion of a fund and the smallest unit of the fund assets. Investors acquire units in the fund and participate in the fund’s performance in line with this holding. In this respect, a fund unit is comparable to an equity. The difference: with a fund unit, investors are invested in a large number of equities, and not just one.
10. What should I invest in? A question that fund investors also ask themselves.
Fund investors unfortunately also have to ask themselves this question. Investors should at least have a rough idea whether they want to invest in equities (high risk but also offer greater opportunities) or in bonds (rather conservative), or whether they would prefer an investment in high-dividend equities (special), real estate (rather long-term), or commodities (very risky). Generally speaking, it is not an either-or proposition in any case, but rather a decision of what to combine. Equities, bonds, real estate, and commodities can all have their place in a balanced portfolio. Their weighting depends on the investor’s personal risk tolerance. Those who want to make things very simple can invest in a mixed fund with weightings that best fulfill their wishes.
