What is a fund?
Investment funds offer easy access to the financial markets. As provision for retirement, as investment in bond markets with higher yields, or as riskier investment in equity markets – funds are an economical and efficient way of implementing your investment of choice.
A fund consists of a portfolio of selected securities (e.g. bonds issued by European companies) that is managed by the fund managers. As required by the Investment Fund Act, such portfolio is broadly diversified. That means it invests in numerous companies and/or countries. For every fund, a net asset value is established frequently (at least daily). The value is based on the value of the fund’s assets. The number of shares issued by the fund is not limited, which is why the term “open-ended investment funds” is in use.
Basic principles of investment funds according to the Investment Fund Act:
- Management is handled by a specialised institution (i.e. an asset management company)
- The funds are managed and the securities are selected by experts (i.e. fund managers)
- Broad risk diversification e.g. in securities of different issuers, countries, and categories
- Permanent establishment of the net asset value
- Assets under management are split into fund shares of equal size
- Strict control of the fund management team by independent auditors
- The shareholder of the fund is a pro rata co-owner of the assets under management; the fund shares represent special assets (separation and recovery of assets in the event of the bankruptcy of your main bank or the bank assigned with the custodianship of the securities (i.e. the depositary bank))
- Utmost transparency for the investor (annual and semi-annual report, fund terms and