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Investment products explained in simple terms Investment products explained in simple terms
How investment funds work, what diversification means, and who investment funds are managed by.
This article gives you a general idea of how investment funds work, what diversification means, and who investment funds are managed by.
Investment funds explained in brief
An investment fund can be thought of as a pool (fund assets) in which investors participate collectively. The fund assets are each invested in a different weighting depending on which strategy is adopted, namely in direct/indirect equity investments, bonds, real estate or precious metals. Investors buy a unit certificate (security) which represents a share in the fund’s assets.
The value of an investment fund fluctuates due to capital gains and losses. In addition, income (interest and/or dividends) flows into the fund. All investors are jointly entitled to the income and changes in value in proportion to their shareholding. With frankly, the fund’s income is reinvested directly and is not distributed to investors. In technical terms, this is referred to as an accumulating fund.
Key Take-Aways
- Legal basis: Investment funds are subject to FINMA licensing requirements, and are specially regulated.
- Diversification: Investment funds invest in a variety of different assets (stocks, bonds, real estate, commodities, etc.). Swisscanto’s investment products each have around 6,000 positions which investments are made in.
- Professional support: Investment funds are professionally managed by a fund management company.
Supervision of investment funds
Every investment fund registered in Switzerland requires a fund management company. The fund management company must have a licence from the Swiss Financial Market Supervisory Authority (FINMA), and is strictly regulated.
In the event of bankruptcy, investment funds are legally considered as special assets and are not included in the fund management company’s bankruptcy estate.
Did you know: There are more than 1800 registered investment funds in Switzerland.
Diversification
An investment fund invests in a variety of securities. The technical term for this is «diversification», which is one of the main advantages of an investment fund. The risk of loss can be spread across various industries, countries, currencies, etc. by using an investment fund to invest in a large number of different positions (especially companies) in various investment categories (money market, bonds, equities, real estate, commodities). Swisscanto funds each have approx. 6,000 positions, which means that those who subscribe to a Swisscanto investment product are indirectly investing in 6,000 different companies.
By the way: The largest positions which your selected investment product is invested in are listed in the frankly app under «Information» – «Investment Product» in the factsheet.
Professional management of investment funds
Another advantage of investment funds is their professional management. Every fund registered in Switzerland has a FINMA-authorised fund management company. The tasks of the fund management company are mainly administrative in nature, whereby investment decisions (e.g. the purchase/sale of certain securities) are made in cooperation with the responsible asset manager within the defined investment strategy.
With frankly, investors can invest in Swisscanto investment products. Swisscanto is one of the largest fund providers in Switzerland and a 100% subsidiary of Zürcher Kantonalbank. The fund assets are managed by a highly professional team of portfolio or fund managers at Zürcher Kantonalbank and regularly win awards, such as at the UNCTAD’s Sustainable Fund Awards 2021 and the Swiss Sustainable Funds Awards 2021. frankly clients can therefore rely on expert know-how.
