Everyone talks about funds, many own them, but what exactly are funds? And why are there index funds and index certificates? Are ETFs also funds? And when is a fund closed and when is it open? All this is explained in this article easily understandable.

Table of Contents[Hide]

  •  The fund statement in bullet points
  • What are funds? Short & understandable fund explanation
  •  What types of funds are there?
  •  Open and closed funds
  •  Active or passive managed?
  •  Buy funds on the stock market
  •  Conclusion
Example picture Fund explanation

Some funds are only created to finance a single project, such as building a house. They will be dissolved after a certain time. Photo: Flickr @ Jérémy Binard


  • Funds are special funds
  • Different types, eg equity funds , real estate funds …
  • Open and closed funds
  • Passive and actively managed funds
  • Partially exchange traded



What are funds? Funds are special funds that have been created for a specific purpose. Special Fund means that the funds IQ Option are kept separate from the remainder of the Fund Manager’s assets. There is a separate revenue and expenditure bill for them and the manager has limited access to the funds. Thus, the money is protected even in the event of bankruptcy of the fund company, the fund is almost run as a separate company. In fact, some funds are legally designed as a separate GmbH, but open funds are usually managed as a separate managed assets within a company.

This separation from the issuer’s assets distinguishes funds, for example, from certificates in which the issuer can freely use the money raised. In the case of his bankruptcy, the certificate is therefore usually worthless or is only partially repaid. Funds remain relatively unaffected by a bankruptcy of the fund manager.

The funds of a Fund are managed separately from the other activities of the Fund Manager and therefore continue to exist in the event of its bankruptcy.
An understandable explanation about funds

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Funds always have a specific purpose. The most well-known are equity funds that collect money for investing in equities. The investors’ money is then managed jointly, and the investors receive shares in the fund. Bond funds, on the other hand, buy interest-bearing securities, such as government or corporate bonds . In principle, most funds are self-explanatory, for example, ship funds buy ships and real estate real estate funds. Legislators stipulate how many percent must be invested in at least one specific area, ie what percentage of the assets an equity fund must invest in equities. In contrast, mixed funds are not subject to these restrictions, so etoro they can, for example, mix bonds and equities as required.

A special feature are funds of funds, which in turn invest in several other funds to spread the opportunities and risks even wider. Also known are the hedge funds , which pry most of the use of borrowed money and do highly speculative transactions, such as short sales, ie sales of stocks they do not own in the hope that the price falls and they can buy the shares later cheaper.

Funds can invest in various assets. Most of them have specialized in one area, such as equities or real estate.


Stock and pension funds are usually run as open funds, meaning that investors can deposit at any time and withdraw their money. Real estate funds, on the other hand, are managed both as closed and as open funds. An open-ended real estate fund can also be constantly paid in and out. If many new customers are paying, if he buys new apartments or offices, many people want to have their money paid out, they have to sell real estate.

By contrast, a closed-end real estate fund is usually set up to finance a single house or project. He collects this for his construction and once the amount has been reached, the fund is closed. It can then no more money to be paid, even payments are not possible. Investors regularly receive a share in the profits. In most cases, the fund will be liquidated after a specified period of time, for example after 20 years. The building is then sold and the proceeds are also distributed plus500 to the investors.

Since stocks and bonds can be bought and sold easily, the model of closed-end funds hardly exists here. By contrast, ships, films or wind farms are predominantly managed as closed-end funds.

Shares may be bought or redeemed regularly for open-ended funds, closed-end funds are no longer eligible for cash inflows after reaching the required amount. For equity funds, however, the model of closed-end funds hardly exists.


It is often not just the question of what are funds? For equity and bond funds, it also raises the question of whether the fund should be actively or passively managed, and for an actively managed fund, specialists select securities according to various criteria Identify particularly promising companies and thus do better than the market.

However, they often do not succeed, because the other market participants also invest much effort in the selection of securities. Also, a fund has done well in the past is no guarantee of future income, at the same time the fund management causes high costs. For this reason, some funds have merely portrayed one index, ie investing their money in the same proportion as companies in the DAX are represented. Thus, the fund achieves the same return as the index, it does not fare better, but it does not fare any better and saves a lot of money for fund management.

For actively managed funds, traders look for promising stocks or bonds. Often, however, they are not more successful than the market, the high costs also depress profits. Therefore, passive funds often index and are much cheaper.


Buying fund shares through the fund companies is often expensive. In part, 5.0 percent of the initial charge is due, so the fund must first rise by about 5.3 percent, before only the sales charge is earned again. Other costs are not included here. The premium is usually used to pay the commission to the intermediary, ie the bank or the investment adviser.

However, funds can also be bought and sold on the stock market. The Hamburg Stock Exchange specializes in the so-called secondary market, trading in funds. Here you can buy and sell not only open funds but also shares in closed-end funds.

Even easier and usually cheaper is the trade in so-called Exchange Traded Funds, better known under the acronym ETF. These are traded on the regular stock exchange such as stocks or bonds. Because the transaction fees of the brokers are usually much cheaper than the fees of the fund companies, more and more investors use this route. Even compared to the secondary market this way is usually cheaper. Often, ETFs are also passive funds and thus also very favorable in terms of management fee. In addition, index funds are particularly well-suited to stock market trading, because their value is easy to determine, and it follows the stock index. An introduction to the topic of funds is also provided by the fondsweb platform .