Meanings of Open Funds

Investors think of the word fund primarily of mutual funds, which belong to the open funds. In the case of open-ended funds, there are theoretically unlimited inflows and outflows of capital, and there are only a few exceptions that have a fixed maturity cycle. In contrast, there are closed-end funds that only collect a certain volume of capital and have a limited term. The investment focus for these funds is, for example, aircraft, ships or shopping centers. Open funds invest in securities, real estate or derivatives. Pionier Funds I was launched in the USA in 1928 as the first investment fund, still on the market today.

  • Open funds offer a wide range of different investment focuses.
  • German capital custodians, the investment companies, usually act as a GmbH.
  • In the case of distributing funds, the investor receives a credit on the clearing account once a year.
  • In the case of accumulation funds, however, the profits are reinvested. This increases the fund’s assets.

Investment focus of open funds

The investment focus of open funds has multiplied in the recent past. In the beginning it was only stocks, bonds, real estate or money market papers, today there are focal points such as raw materials, indices or mixed funds in the range of products. This means that open funds reflect almost the entire spectrum of the capital market and offer investors across all categories the option of leaving the selection to an experienced fund management team. Through the differentiated selection of the investment focus, open funds also cover the entire spectrum of the risk-reward profile, the risk classes. There are a total of five risk classes, from one (“safe”) to five (“dynamic”). They also apply to individual titles.

The legal forms of open funds

With regard to the legal forms of the funds approved for sale in Germany, a distinction must be made between German law and foreign law – usually Luxembourg.

The German legal situation

German capital custodians, the investment companies, usually act as a GmbH. The customer money is allocated to the respective fund as a special fund. In the event of the insolvency of the fund company, the fund remains unaffected. Theoretically, the bankruptcy of an equity fund would only be possible if all the stock corporations held in it filed for bankruptcy on the same day.

SICAV – the legal form of Luxembourg investment companies

SICAV funds (société d’investissement à capital variable) are funds under Luxembourg, Italian, Swiss and Maltese law. The fund company itself operates as a stock corporation and also sets up a stock corporation for each new fund. Depending on its capital requirements, it can issue new shares or buy back existing shares. The fund shareholders in turn participate in the SICAV, which participates in the stock corporations that make up the fund portfolio.

The profits of open funds

Open funds have a distribution date once a year. However, a distinction is made between actually distributing funds and accumulating funds. In the case of a distributing fund, the shareholder receives a credit on the clearing account. Reinvesting funds reinvest the profits generated in the past financial year directly in new fund units without a new front-end load.

The profits of a fund include, on the one hand, dividends or interest credits from the securities in the fund, and, on the other hand, price gains from the sale of underlyings contained in the fund. In the case of accumulating funds, too, taxation takes place directly with the reinvestment, since under tax law this is income similar to distribution.

The effects of open funds on the capital market

The largest fund in the world, the Magellan Funds, comes from Fidelity. At the end of 1999, this fund was managing over $ 100 billion in investor money. The fund had to be closed to new investors in the mid-1990s and did not accept new customer deposits until 2008. The background to this was that the management had problems acquiring or selling off new equity positions. Due to the fund volume, positions in individual stocks were sometimes so large that even a gradual sale would have led to massive price drops on the stock exchanges. Open-ended funds sometimes hold quite considerable positions in individual companies. As major shareholders, they also have an influence on company policy. The goal of achieving the highest possible overall performance for the fund.