A wish list for the ideal investment would be something like this: Above all, it should generate returns. Which is logical, because no one wants to have less money in their pocket at the end of the day. And the investment should also be secure. Plus, it would be practical if you could access the capital at any time like in a current account. So return, security, and liquidity – but an investment can only rarely meet all of these requirements simultaneously. Consider the good old fashioned savings account, or a building association savings agreement. These two options are very, very secure. But there is a price: The interest rates and thus the return are extremely low at present. And the currently high inflation is eating away at the capital. So what should a person invest in?
Investment markets offer a wide range of opportunities. Though past performance is of course not a reliable indicator of future developments, the equity indices (Dow Jones, DAX, etc.) have been rising for years. Equities, bonds, and currencies offer numerous opportunities. However, they also bring a higher risk of capital loss and require a certain degree of knowledge. So how can they be used? Funds can definitely be a good alternative to savings accounts and other such investments.
What is a fund?
Funds combine the capital of many (small) investors. Instead of investing individually, these unit-holders invest their money collectively.
Fund managers allocate this combined capital to various assets depending on their assessment of the market and the orientation of the investment fund. These assets can be equities, bonds, real estate, currencies, and more depending on the structure of the fund portfolio.
The net asset value (NAV) of the fund is calculated regularly (usually daily) based on the current prices of the assets held in the portfolio.
What are the unique characteristics of a fund?
You can invest in the financial markets with a small sum (for example regular contributions of EUR 50 per month, see “What is fund-based saving?”).
The risk is distributed among many securities, so the investment is not subject to the price volatility of a share. Broad diversification among numerous asset classes (e.g. shares, bonds, etc.) in different regions, sectors, and currencies can further reduce risk.
You need little time. When you invest in a fund, you do not have to continuously monitor prices and trends on the market and adapt the investment strategy. Fund managers monitor these aspects on an ongoing basis. They conduct the necessary extensive research to adapt the portfolio to market developments as needed.
There is a wide range of retail funds to choose from Raiffeisen Capital Management (Raiffeisen Kapitalanlage GmbH).
High flexibility: Units in investment funds can generally be bought and sold at any time, i.e. daily.
What you should pay particular attention to with a fund
A fund is not a savings account. A fund is subject to price fluctuations, just like an individual share. There is no guarantee of rising prices. Capital losses may be incurred with a fund.
Past value is not a reliable indicator of the fund’s future performance.
Because the fund is administered professionally by fund managers, a management fee must be paid depending on the invested assets. There are also other costs such as a custodian fee, fees when fund units are purchased, transaction costs for the purchase and sale of securities in the fund, and taxes on earnings. Your Raiffeisen bank advisor will be pleased to inform you of these costs.
Every investor has an individual risk appetite and earnings expectations. So it pays to obtain comprehensive advice in advance to find the right fund. Your Raiffeisen bank advisor will be pleased to assist you.
There is generally no mandatory commitment period for funds. However, we do recommend a minimum holding period depending on the fund. Price declines and even capital losses may occur in negative market phases.
What kinds of funds are there?
Funds can be categorised according to many criteria:
By asset class: Equity funds invest solely in shares in companies. Bond funds invest in government and corporate bonds. Mixed funds invest in shares and bonds.
By sector: These funds focus their investments on a specific sector such as technology, energy, or health care.
By region: Do you want to invest solely in the DACH region (Germany, Austria, Switzerland) or in US shares? Do you see greater opportunities in the global Emerging Markets? Some funds employ a corresponding regional focus.
What does the Investment Fund Act govern?
The Investment Fund Act governs the relationship between investors and investment firms. This federal Austrian law focuses primarily on protecting the investor. According to the Investment Fund Act, funds are strictly segregated from the other assets of the fund company. This means that should the fund company or custodian bank go bankrupt, the fund assets and the ability to access them are preserved for the unit-holders.
Would you like to learn more about funds offered by Raiffeisen Capital Management? Your advisor at Tatra banka a.s. will be pleased to assist you.