During conversations about banks, investments, shares and money, the term “fund” crops up again and again. But what are funds exactly? We asked passers-by on the street how they’d explain this type of financial investment.
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What is …? A fund?
17.11.2023
Funds in a nutshell
Lots of people “have heard of them”, but not many can explain exactly what funds are. Our passers-by in the video also confirm this.
So then, what exactly is a fund?
An investment fund is actually a kind of pot into which many individual investors can pay money and thus pool their capital. Fund managers then invest this money that has been entrusted to them on behalf of the investors. All the payments in the pot form the fund assets. The investors all hold shares in these assets, the value of which depends on the price of the security in the pot. These are called fund units and depend on the amount of money the investor has invested.
What is your money invested in as part of the fund?
The question can only be answered once it is clear which type of fund you want to invest in. There are equity funds, bond funds, asset allocation funds, real estate funds and hedge funds. The various types of funds can also be managed actively or passively.
In the case of shares that are known to have a relatively high risk, investing in an equity fund can be especially worthwhile.
Is an investment fund a smart investment?
Funds are indeed an attractive investment, offering the opportunity to benefit from higher return opportunities in the low interest rate environment, in which the money in a bank savings account yields no, low or even negative interest gains. Shares in funds are also a good long-term financial investment for retirement planning. Find out more about investing in retirement funds and why you should focus particularly on shares when saving for old age in our article: “What is the right retirement fund for your circumstances? It is well worth comparing them!”
Investing in funds can be interesting for investors for the following reasons:
- You can start with small amounts and invest your savings in a fund with ease.
- Your investment risk is spread, i.e. diversified, as investment funds include a large number of different securities or other investments and are not dependent on a single security price.
- Funds are considered segregated assets, which means that your invested money is insured in the event of bankruptcy. This, of course, lowers your risk.
- Funds are subject to legal provisions and are regulated by the state.
Find out why you should diversify your portfolio as an investor in our article “Diversification: why is it important?”.