What types of mutual funds are there
A mutual fund does what every investor should absolutely do: It spreads the risk. Because a fund is a collection of different stocks, bonds or real estate. The idea behind this is that every financial investment is subject to fluctuations in value. If the investor invests in a bundle of promising securities, some will meet expectations, while others will fall short. The probability that the investor will lose all of his savings is relatively low. If the prices collapse worldwide, however, the funds also decline. With a little luck and after carefully examining the key figures (read more about it in this guidebook), however, the profitable papers predominate and the investor achieves better returns than with the savings book.
Because fund companies collect and invest money from many investors, each shareholder can spread risk with a small amount. A second advantage is the low expenditure of time. Once you have decided on a fund, you do not have to constantly monitor prices and developments in the market and come up with new strategies. From now on you leave that to fund managers or automatisms (read here more about active and passive fund management). Last but not least, the fact that there is no issuer risk here speaks for funds. That means: If the fund company goes bankrupt, the shareholders are entitled to their assets. The securities are usually sold and the equivalent refunded. Creditors have no access. However, all these advantages have their price: Funds are a comparatively expensive investment (read more about the costs of buying funds here).
What happens to interest and dividends?
Of course, dividends and interest are due for the various securities in a fund. This money belongs to the shareholders. While "distributing funds" pay out the money regularly, "accumulating funds" retain the profits and continue to invest them. The individual shares gain in value and the investor benefits from the compound interest effect.
The range of funds is diverse. Depending on the type of securities and investment objects, they can be assigned to different types - for example equity funds, pension funds and real estate funds. But this classification is not always clear. The fund prospectus states in which securities and regions are invested and according to which criteria they are selected. You should at least read the package insert, the KIID (Key Investor Information Document), carefully before making an investment decision. This is a summary of the most important information on investment objectives, risk, costs and past performance. You can find both at onvista.de, for example. To do this, enter the WKN (securities number) or the ISIN (International Securities Identification Number) in the search field and click on fund prospectus.
For an initial overview SZ.de the most important types of funds here shortly.
- Equity funds invest only or almost without exception in stocks. In Germany there must be at least 16 different ones, with none of them representing more than ten percent of the fund's assets. The origin of the securities is often limited to certain regions (e.g. Europe, North America, Asia), countries, country categories (e.g. industrialized or emerging countries), industries or companies of a certain size. In general, equity funds are considered riskier, but also more promising than bond or mixed funds.
- Pension funds invest mainly in corporate and government bonds, with other interest-bearing securities such as Pfandbriefe and participation certificates in the portfolio In technical jargon, bonds are called pensions - the name has nothing to do with pensions. Since the risk of this type of investment is comparatively low, many investors use it as a retirement provision. Profits are mostly made up of interest distributions. The prices do not fluctuate that much. Bond funds are an investment option for cautious investors.
- Mixed funds: Mixed fund managers buy stocks and bonds from the fund's assets, sometimes supplementing them with raw materials and real estate. This also prevents negative developments in an entire type of investment and spreads the risk even further. Depending on the fund, the mix ratio is roughly or precisely specified. Investors can therefore understand the manager's decisions relatively well. As a rule of thumb, the larger the equity component, the more risky - the larger the bond component, the safer the investment.
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