From active to accumulating: how funds differ from each other
Funds cannot always be clearly distinguished from one another. This is because certain aspects often overlap, so that a fund can be assigned to several categories at the same time. Take a red Tesla Model 3 as an example: it can be categorised as an electric vehicle as well as a red saloon. This refers to the functional principle (electric motor) as well as the shape and colour (red saloon).
Similarly, funds are differentiated according to characteristics such as form and function. For example, an equity fund can also be a sustainable solar fund at the same time if the fund assets are invested in sustainable companies in the field of solar energy.
But there are also specific criteria that differentiate different types of funds.
Open-end vs. closed-end funds
Open-end funds are traditional investment funds. As an investor, you can buy units in these funds at any time and sell them again at your desired time at the current redemption price. The number of fund units available for sale is therefore not capped and is not linked to any specific commitments.
The fund units themselves are often not expensive, with the result that such funds are also suitable for cautious investors who want to start with less investment capital. Additional protection is provided by the strict legal requirements that open-end funds must meet in order to be able to sell their unit certificates to investors.
Closed-end funds are a form of corporate investment and are not traded on the stock exchange, meaning that the fund units cannot be acquired or sold arbitrarily. The fund assets are accumulated from investors within a certain period of time and used for one or a few large projects, such as an office property or a shopping centre.
The minimum holdings usually only start at around EUR 5,000 and extend into the six-digit range. The maturity of closed-end funds is often a long period of 10 to 30 years. As the shares cannot be sold on the stock exchange, a so-called replacement investor must take over the shares in the event of a planned sale.
Due to their legal basis as a corporate investment, these funds offer only limited protection for investors. Closed-end funds therefore have significantly more pre-requisites than open-end funds and rely on a high risk appetite, high initial capital and, due to the long term, on long-term financial planning.
Actively vs. passively managed funds
Active funds are, as the name suggests, funds actively managed by a fund manager. His task is to observe and analyse various markets such as the tangible asset or securities market, which often involves other companies and analysts.
Based on current market research, the fund manager seeks to identify assets that are as close as possible to the investment strategy of the relevant fund in order to align their investment decisions.
For this purpose, fund managers analyse existing data that has proven helpful in the past in order to make as specific a diagnosis as possible for the future. However, even the best analyses cannot reliably predict the future despite all the specialist knowledge, which is why active fund management is always associated with certain uncertainties.
Active funds also have higher costs than passively managed funds due to the active management and service provided by the fund managers.
Passively managed funds are not managed by experts, but usually map an existing stock exchange index on a computer-controlled basis. A DAX fund, for example, comprises shares in the 40 companies listed on the DAX. By investing in such a fund, you participate directly or indirectly in the development of these companies and thus in the development of the DAX.
The benefit of passive funds lies in the low costs. Management fees are significantly lower here than for actively managed funds, often below 0.5%. The most popular passively managed funds include ETFs, i.e. exchange-traded index funds. Investors in passive funds are therefore dependent on market fluctuations and possible price drops, which – unlike actively managed funds – cannot be avoided or mitigated by switching.
Asset funds such as hausInvest, klimaVest or infraVest are generally actively managed, because real assets such as real estate, wind and solar farms or infrastructure systems must be operated professionally. Which property is bought, leased or sold at what price, which power purchase agreements are extended when, which radio masts fit in which region - these are active asset management decisions that an active asset management team must make continuously.
Accumulation vs. distribution funds
Accumulation funds are those that do not pay you your return at regular intervals, but reinvest your profits. If you have invested EUR 10,000 and receive a return of EUR 500 at the end of the year, this amount will be added to your investment amount for accumulating funds.
The advantage of accumulation funds is the compound interest effect, which is to your benefit. In the process, what you have earned in returns in the first year is added to your original investment amount, which is why your investment amount increases steadily and you earn more and more returns from the second year onwards. However, the disadvantage of such funds is that you will not receive your return until you redeem your fund units.
However, most funds are distributing funds that pay you the dividend you earn on a regular basis. So if you are entitled to a return of 500 euros on your 10,000 euros investment capital at the end of the year, you will receive this in your bank account. This means that your profit does not continue to earn interest, but you can dispose of it freely – it is not for nothing that such profit distributions are considered by some to be a bonus month's salary.
