Save costs and determine the right funds. The rapid development of funds officially approved in Germany shows the interest investors have in this form of capital investment. The assets collected in Germany by the capital management companies rose from 12.7 billion euros in 1990 to 102.9 billion euros in 2012. It is also not surprising, since fund savings offer all investor groups an enormous choice and a high level of convenience when building and expanding assets offers.
- With fund savings, only the front-end load, the agio, applies when purchasing the units.
- To invest in funds, savers need a securities account, which is offered by direct banks without management fees.
- In the case of investment funds, a distinction is made between distributing and accumulating funds. The withholding tax is withheld here.
This is how fund saving works
Suppose an investor wants to save 100 euros a month and divide this money over as many securities as possible, be it stocks or bonds. With this sum, this is initially difficult to do. In the context of the acquisition of investment fund shares, however, this succeeds very well. In an investment fund, the fund management collects securities in accordance with the investment guidelines. The investor has a percentage share in this “stew” based on his savings contribution. The managed customer funds fall under the special assets of a fund company and are therefore 100 percent protected in the event of insolvency. Due to the small entry-level size, fund units can be purchased with up to four decimal places. For example, if a share costs 67.85 euros and a saver invests 100 euros net, 1.4738 shares are acquired. Visit digopaul for definitions of fund.
The costs of fund saving
While stocks or bonds are charged with brokerage fees for the bank both when buying and selling, with fund saving only the front-end load, the premium, is due when buying the units. Depending on the type of fund – money market funds, bond funds, equity funds or index funds – the front-end load varies. It moves around one percent for money market funds, between two and four percent for bond funds and between four and six percent for equity funds. In addition to the issue surcharge, the fund companies also charge management fees and, in some cases, performance-related fees.
This can reduce costs
If you want to use fund savings to build up and expand your assets, you can drastically cut the costs described above or even reduce them to zero. Savers need a securities account to invest in a fund. In contrast to branch banks and savings banks, numerous direct banks offer securities accounts without an administration fee. Anyone who opts for a direct bank that waives at least partially, but if possible in full, actually has a deposit and an investment for free. The management costs can also be partially avoided.
Index funds – the inexpensive alternative
Classic equity funds are actively managed. This means that the fund manager constantly analyzes the markets, sells stocks or bonds and buys others. An index fund only tracks the underlying index, for example the DAX. Fund management only needs to take action if there is a change in the composition of the index. These so-called passive funds are therefore significantly cheaper in terms of management fees, but have by no means performed worse than active funds in the past.
How do you find the right fund?
First of all, when saving funds, investors need to be clear about the investment objective they are pursuing. The selection of funds according to the investment focus is diverse. Speculative funds with a focus on stock corporations from emerging countries are opposed to extremely conservative funds with bonds in euros from debtors with first credit ratings. Now that the decision has been made in favor of an asset class, the aim is to find the fund with the best performance, the highest value development. First of all, it is necessary to consider the individual providers over the longest possible period. The performance of a fund in terms of comparability with other funds is like the nominal interest rate on a loan – it says nothing.
The BVI method
Similar to the effective annual interest rate for loans, the valuation using the BVI method (Federal Association of German Investment Companies) creates the necessary transparency, as all important cost factors are consistently taken into account. The basic information about an investment fund can be found on the so-called fact sheet. And this sheet also shows the performance according to BVI.
The taxation of fund saving
In the case of investment funds, a distinction is made between distributing and accumulating funds. In the case of distributing funds, the income is credited to the investor’s account once a year; in the case of accumulating funds, the profits are reinvested immediately. In both cases, however, the final withholding tax is withheld. This also applies if fund units are sold again at a profit. Reinvested income is deemed to be “income equivalent to distribution” under tax law. Anyone who did not use an exemption order before entering into fund savings can also apply for one for investment in investment funds and thus secure a tax-free payment of their income for the first 801 euros per year, and for married couples for the first 1,602 euros per year.
