Funds means that institutions or individuals collect money for a particular purpose. In many cases this happens as an investment. The concept of the fund is broadly defined: originally it means a fund of funds intended for a particular purpose. For example, it may be a government emergency fund or a union strike fund. In most cases, it is a fund in the sense of mutual funds. Investors collect money together to benefit from the investment.
Typical investment funds include:
Real estate funds
All funds have in common, which usually deposits a large number of investors certain amounts. A professional management invests the money. A special case is index funds. For index funds, management invests capital exactly as it does for a corresponding index, such as the DAX. With the investments, the management adapts itself to this index with minimal deviations; unlike actively managed investment funds, it does not implement its own investment policy. That’s why these funds cost less than other products because the effort is kept within manageable limits.
What advantages do investment funds have?
Mutual funds are associated with some pluses for investors. Investors can usually participate with small amounts, often with disposable investments from 250 to 500 euros. In addition, there are many investment funds, the option of savings plans from monthly in about 25 euros to agree. The advantage is that savers can realize risk distribution even with small amounts. For example, if you buy individual shares, you must invest at least € 1,000 per share. This carries the risk of putting everything on one card. In the case of an equity fund, on the other hand, they spread their money on shares of various companies, various sectors and, if appropriate offers, even on different countries. This ensures the risk distribution recommended by all financial experts. On the other hand, costs are incurred. For most mutual funds, savers must pay an initial charge calculated as a percentage of the current price. It can be up to 5%. In addition, most companies charge an annual fee, which reduces the price of the mutual fund in percentage terms.
As a return, investors refer to the total return that results from the difference between the deposit and the value of a capital or fixed asset. The level of returns for most assets is linked to the potential loss spread. High-risk investments usually bring the highest return. Returns can be achieved through many different types of investments.
What does the return mean?
Originally, the term returns came from the area of capital investment. So a certain amount of money is invested, for example by investors. After one year, the income is calculated, which has since been generated by the capital contribution. The difference between income and deposit is the return. The difference between interest and yields is that the return on the investment can not be guaranteed. Most stocks are subject to fluctuations, so a guaranteed return, if anything, can be very low. So if interest can be agreed, returns are usually given only as a rough estimate of the profit.
The return is always expressed as a percentage p.a., ie per year. Returns, like any investment income, are subject to a tax that often significantly reduces net profits. In addition, many providers charge fees on the system itself.
What different forms of returns are there?
The definition of returns today includes all types of capital increase through investment. However, the risk is always assumed. Raw materials, financial resources or even your own work can be contributed. For example, founders often give other entrepreneurs the chance to join their new startup with working hours to earn shares in the company. Even then, the difference between the acquired share and the working time worked in hourly rates is a kind of return.
Yields are particularly often achieved by investing in:
- Stocks and securities, dividends are also possible here
- Bonds in companies or government bonds
- real estate
- Precious metals and collector’s items
Risks and necessary knowledge
Investment products offer a way to achieve high returns when the investor is willing to calculate with a certain degree of risk. For example, leverage in equities is used. However, as only high risk generates the highest possible returns and most private investors have limited resources, this type of investment should only be chosen by people who have already dealt with financial resources and markets and know the mechanisms.