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Investment Funds – Investors' Academy


What is an investment fund?

Through an investment fund, your money is invested jointly with the money of many other fund participants. You therefore buy a part of the investment fund, which makes you a co-owner of the fund. We call this part a holding or a unit. An investment fund is set up by a fund company. The fund company appoints a fund manager also known as an asset manager, to manage the fund.

Investment Fonds

Easy diversification with investment funds

The fund manager invests all of the participants' funds together in many different shares (an equity fund), bonds (a bond fund) or real estate (a real estate fund), for example, or a combination of these investment categories (a mixed fund).

All the risks associated with shares, bonds and real estate may therefore apply to investment funds, depending on the composition of the investment fund's portfolio. Investing in an investment fund is therefore an easy way to help you diversify your investment portfolio. You can increase the spread yourself by investing in a number of investment funds, each with a different focus (such as different regions or different business sectors).


What you need to know about investment funds

Investment funds come in all shapes and sizes. Here are a few things you need to know before investing in an investment fund:

  1. Read the Key Investor Information Document

    The Key Investor Information Document (KIID) is a standard document that contains the most important information about each investment fund. These include the fund's goals, characteristics, risks and costs. Most European investment funds are subject to supervision by the European financial market regulators and are required to have a KIID. The KIID allows you to better assess the risks of an investment fund and makes it easier to compare funds from different providers. This allows you to assess whether you want to invest in a given investment fund. Read this document before you invest in a particular investment fund.

    Each KIID also has a risk scale. This immediately shows you how high the risk of the investment fund is on a scale of 1 to 7, where 1 is the lowest risk and 7 is the highest risk. This risk is calculated mainly on the basis of the volatility of the investments within the fund. The further the prices of these investments rise or fall, the higher the score on the risk bar.

  2. Or better still, read the prospectus

    Investment funds are required to have a prospectus. An approved prospectus allows investment funds to be listed on a financial market, such as a stock exchange. The Key Investor Information Document provides you with the most important information about the investment fund on which you can base your investment decision. The prospectus contains more detailed information about the investment fund.

  3. The costs vary for each investment fund

    The costs of an investment fund affect its returns. It's therefore important that you know what costs the fund charges. These can also be found in the KIID. Every fund charges fees for the management of the fund. These include an entry fee, management fee, administration fee and transaction fee:

    • The entry fee is a one-off fee when buying shares in the fund. They are usually expressed as a percentage of the capital you invest.
    • The management and administration fees together constitute the running costs. Running costs may vary from year to year.
    • Transaction fees are the costs incurred by the fund manager when buying and selling the underlying investments held in the fund. These transaction fees are not part of the running costs and are not included in the KIID either.

    The running costs and transaction fees are included in the price of the investment fund and are determined by the investment fund. You therefore do not have to pay these costs when you buy the fund, but they are deducted (annually) from its net asset value.

    In addition, you may have to pay transaction fees to your bank or broker when you buy or sell an investment fund.

  4. Investment funds can be traded each day at a standard price

    Most investment funds are easily traded. What you need to take into account is that almost all investment funds only fix a price once a day. How does this work? The fund manager collects all buy and sell orders for the day and sets them off against each other. Based on this, they determine a single price. They do this at what's known as a 'cut-off time'. If you place an order before the cut-off time, the fund manager will execute your order at the price at the cut-off time on the same day. If you place an order after the cut-off time, the fund manager will include your order in the next day's transactions, and execute your order at the price at the cut-off time on the next day. The cut-off time for most European investment funds is at the end of the afternoon. You can see which cut-off time applies for an investment fund in the product details for that investment fund.

  5. There are open-end and closed-end investment funds

    There is a difference in how the fund manager determines the price of the investment fund. This is derived from how the investment fund can issue new investments. We distinguish between an open-end (Bevek) and a closed-end (Bevak) investment fund.

    • In the case of an open-end investment fund, the fund manager can issue and redeem new investments on an ongoing basis. The number of units (shares) issued is not limited. As a result, the fund can easily add new investments or redeem existing ones, which means that the price of the investment fund barely reacts at all to supply and demand. The fund manager fixes the price mainly on the basis of the actual values of the underlying investments and other assets of the investment fund. This value is known as the intrinsic value. The risk of sharp price fluctuations is therefore much lower for an open-end investment fund than for a closed-end investment fund. Most of the investment funds in which you can invest through ABN AMRO are open-end investment funds.
    • With a closed-end investment fund, the total number of shares that the fund can issue is fixed. The price of the investment fund may therefore react strongly to supply and demand and may differ from the actual value of the fund (based on the underlying assets). For example, if many investors want to buy the investment fund, demand will be much greater than supply. As a result, the price of the investment fund may rise sharply. If investors want to sell the investment fund on a massive scale, supply is much higher than demand. This, in turn, means that the price could fall sharply. With a closed-end investment fund, there is therefore a chance that you may not be able to buy or sell the investment fund at the time and price you want. This increases the liquidity risk, which may be a disadvantage for you, particularly in a negative market.
  6. There are distribution and accumulation investment funds

    With distribution funds, you receive a dividend on a defined date, depending on the fund's dividend policy.

    Accumulation funds, on the other hand, do not pay out dividends. The income collected by the fund is reinvested in the fund, which means that you only receive the capital gain when you sell the shares.

  7. There are active and passive investment funds (ETFs), too

    Most investment funds you can invest in through ABN AMRO are active investment funds. The fund manager of an active investment fund applies a specific strategy when selecting investments and therefore seeks to achieve a higher return than the benchmark index.

    An exchange-traded fund (ETF) is usually a passive investment fund. This means that the ETF fund manager only tracks the benchmark and therefore aims to achieve the same (or almost the same) return as that of the benchmark.


The advantages of investment funds

  • The investments are selected and managed by an experienced fund manager. They in turn are supported by a team of specialists. As an investor in a fund, you benefit from their knowledge and expert management.
  • The investments held in an investment fund are diversified. As a result of this spread, the value of your participation in a fund will often rise or fall less rapidly – certainly when compared to investments in individual investment products.
  • Some investment funds give you the opportunity to invest in markets or sectors that you, as a private investor, would find difficult to access.

The disadvantages of investment funds

  • No matter how much expertise a fund manager has, the return on your investments can be disappointing, even with an investment fund. You may lose (part of) your investment.
  • Pricing and trading of investment funds are not available minute by minute, but just once a day.
  • Investing in a fund allows you to spread your risk better. However, investing too much in one type of investment fund can also adversely affect your return (such as investing solely in shares or in one sector).

Investment fund risks

  • Liquidity risk:
    This indicates the level of difficulty of selling a share. This risk is limited for investment funds, as open-end investment funds can buy back the units or shares at their net asset value. In the case of closed-end investment funds, this option of redemption by the institution does not exist. The investor must trade on the secondary market where liquidity varies from one fund to another.

  • Price risk:
    This risk mainly depends on the securities in which the fund invests. If, for example, the companies in which an equity fund invests lose value, your investment in that investment fund will also be worth less.

  • Performance risk:
    An investment fund often pays a dividend. In the case of accumulation funds, the dividend is automatically reinvested in the fund and therefore forms part of the net asset value. The dividends from a distribution fund will vary depending on the income from the assets held.

  • Exchange rate risk:
    When an investment fund is denominated in a foreign currency or invests in underlying assets listed in a foreign currency, there is an exchange rate risk. Currency exchange rates fluctuate every day. If the currency in which the fund or its underlying assets are listed decreases in value, you may receive back less in your base currency than your original investment.

  • Interest rate risk:
    The interest rate risk depends on the composition of the underlying portfolio. It is obviously greater for funds that invest in fixed-income assets, but it also exists for funds that invest in other assets (such as shares).

Taxes on investment funds

  • Tax on stock exchange transactions (TST):
    Most funds are subject to stock market tax when shares are sold.

  • Withholding tax on dividends:
    Only distribution shares are subject to withholding tax on dividends received in Belgium.

  • Capital gains tax:
    If more than 10% (25% for purchases before 1 January 2018) of a fund is invested in receivables, the capital gain is taxed at the withholding tax rate (also known as the Reynders tax).

For a recent overview of our standard costs and taxes, please consult our list of charges.

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