Investment funds

The Swiss Funds & Asset Management Association SFAMA (SFAMA), which
was established in 1992 with its registered office in Basel, is the representative
association of the Swiss fund and asset management industry. Its members
include all the major Swiss fund management companies, many asset managers,
and representatives of foreign collective investment schemes. Among SFAMA’s
members there are also numerous other service providers operating in the asset
management sector. SFAMA is an active member of the Brussels-based European
Fund and Asset Management Association (EFAMA) and the International
Investment Funds Association (IIFA) in Montreal. For more information, please
go to www.sfama.ch. You can also follow us on Twitter @SFAMAinfo.
CONTENTS

Foreword Everything you ever wanted to know about investment funds 4

Investment funds What are investment funds? 5

How do investment funds work? 5
What types of investment fund are there? 6
How do investment funds invest? 6

Key advantages Investor protection 7

Transparency 7
Liquidity 7
Diversification 8
Professional management 8

Information, costs, and Fund documents 9

taxes Commissions and fees 9
Taxes 9

Buying an investment The key steps 10

fund

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FOREWORD

Everything you ever wanted to know about

investment funds
Dear reader

Important for one and all Financial investments are an issue that is important for every one of us. After all,
sooner or later we all have to deal with our personal retirement savings,
something that has to be addressed thoroughly and in good time.

Advantages of investment Security and increasing value are important aspects with any form of
funds investment. Investment funds offer an ideal solution for a diverse array of needs,
and make it possible to invest in a professionally managed portfolio even with
smaller amounts. Fund investors also have access to a broad range of
documents that provide transparent information. Investment funds are
regulated by law and ensure particular protection for investors. Added to this,
they are managed by specialists, and offer certain advantages in the event of
the provider going bankrupt.

A handy reference guide This brochure looks at the key aspects of investment funds. We hope you find
it interesting reading, and that you find some answers to your questions here.
You can also find explanations of all the key terms in the glossary on the website
of Swiss Fund Data, a subsidiary of the Swiss Funds & Asset Management
Association SFAMA (https://www.swissfunddata.ch/sfdpub/fund-glossary).

Best regards

Fubo

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INVESTMENT FUNDS

What are investment funds?

Characteristics
Investment funds are products in which many
investors can place varying amounts of money to
form a collective pool of assets for investment,
which is then managed professionally.

The money placed in funds is invested by expert asset managers in equities,
bonds, etc. on the national and international exchanges. The dividends and
interest from the investments accrue to the investors in the form of fund income.
The investors have a stake in the fund in proportion to the amount they put in.
As a rule, fund units can be bought and sold at any time. Given that a fund
constitutes a segregated pool of assets, investors also enjoy increased protection
and advantages in the event of the fund provider going bankrupt.


Fund income Dividends, interest

Payments Investment Investments

fund

How do investment funds work?

Clear allocation of tasks
Investment funds and the companies involved
are strictly regulated by law, and come under
the supervision of the Swiss Financial Market
Supervisory Authority FINMA. Funds are not a
‘black box’.

Every Swiss investment fund has to be approved by the Swiss Financial Market
Supervisory Authority FINMA. A fund has a management company, its own
specialist asset manager making the investment decisions, and its own custodian
bank, which holds the securities in safekeeping. All of these three also have to
be authorized by FINMA. Investment funds can be managed actively or passively,
and the investment guidelines set out how the asset manager may invest. The
fund documents (e.g. fact sheet, annual report) provide more exact details on
the investments.

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 What types of investment fund are there?


Different fund categories Funds can place their assets in a wide range of
investments in Switzerland and abroad, and
therefore come in a variety of different types.

 Equity funds invest predominantly in equities (shares in companies), both
nationally and internationally.
 Bond funds invest predominantly in bonds (debt securities) issued by
governments, cantons, municipalities, and companies.
 Real estate funds invest in residential or commercial properties (offices/shops),
and some in a combination of the two.
 Money market funds invest their assets primarily in fixed-term deposits,
fiduciary investments, money market instruments, and securities with a term
to maturity not exceeding one year.
 Asset allocation funds – also known as strategy funds or mixed funds – invest
in different instruments (equities, money market, bonds, etc.) depending on
their strategy or investment objective.
 The category of other investment funds includes commodity funds, hedge
funds, private equity, infrastructure funds, etc.

How do investment funds invest?

Different approaches Funds either invest their assets actively or
passively. Each of these approaches entails
opportunities and risks for investors.

 Active investment funds select and combine individual securities on the basis
of certain criteria, monitor them continually, and change them as required.
 Passive investment funds reduce the management to a minimum and auto-
matically track a market index. A distinction is drawn here between index funds
and exchange-traded funds (ETFs):
• Index funds replicate a specific, representative market index (e.g. SMI, SPI) as
exactly as possible. They therefore invest in the companies (or equities and
bonds) that make up the index in the same proportions as the index itself.
• ETF units can be traded, i.e. bought and sold, on an exchange. Most ETFs are
passively managed index funds.

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KEY ADVANTAGES

Investor protection

Segregated pools of Since investment funds are segregated pools
assets of assets that are not affected if the fund
management company goes bankrupt, they offer
investors effective protection for their money.

There are no guarantees when it comes to financial investments, a degree of

risk always remains. However, the Federal Act on Collective Investment
Schemes (CISA) and the Swiss Financial Market Supervisory Authority FINMA
ensure that fund investors are effectively protected from abuses and improper
business practices. Like stocks and bonds, funds are subject to smaller or larger
fluctuations in value. In the event of a management company going bankrupt,
the fund’s assets are legally segregated in favor of the investors and do not form
part of the bankruptcy estate.

Transparency
Transparent
Investment funds stand for transparency.
Investors know how and where their money
is invested, and they are clearly informed
about the costs and fees.

Transparency is more than just a legal duty to provide information: it creates

trust. Investors can clearly see and readily understand how investment funds are
constructed and how they work. Information on aspects such as the investments
a fund makes, how these investments have performed, and the current and
maximum costs and fees involved in investing in the fund can be found in the
various fund documents, such as the Key Investor Information Document (KIID),
the simplified prospectus, the prospectus, the fund regulations, and fact sheets,
as well as the annual and semi-annual reports.

Liquidity

Easy exit
There’s no need to wait around when it comes to
investing with funds. Putting money in and
taking it out could hardly be easier, and fund
providers are also obliged by law to redeem units.

Investors in funds have no say in the asset managers’ investment decisions.

However, the Federal Act on Collective Investment Schemes (CISA) does provide
them with an option for withdrawing from the fund, entitling them to redeem

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 their units at the current value of the fund. The value of a fund unit is based
on the performance of the investments the fund holds. The redemption
arrangements are set down in the fund’s documents.

Diversification

Broad diversification With investment funds, investors don’t have to put
all their eggs in one basket. The assets are spread
across different securities (e.g. equities, bonds),
markets, and currencies, which reduces the overall
risk.

Ensuring a broad diversification of investments – and thus spreading the individual

risks – is one of the core characteristics of investment funds. By investing in fund
units, investors get a stake in a ‘basket’ filled with a wide range of different
securities. To achieve the same diversification with direct investments in equities
or bonds, retail investors would have to invest much larger sums and continually
keep track of their investments themselves. Funds are major investors and thus
enjoy better trading conditions than small investors, so they can open up easy
access for investors to all financial markets.


Professional management

Professionals at work By investing in a fund, you delegate the manage-
ment of your assets to investment professionals,
who constantly monitor and manage the portfolio
in line with the investors’ interests.

A fund’s objective is to earn money on the financial markets, be it from
appreciation in the value of investments held or from income such as interest
or dividends. In seeking to achieve this, the asset managers are bound by strict
investment guidelines. These managers ease the burden on retail investors. They
are professionals who deal with investments continually. This entails heavy
demands in terms of amassing information and further training in a complex
environment with a plethora of markets, currencies, and investment instruments.

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INFORMATION, COSTS, AND TAXES

Fund documents

Well documented
If you want to invest in funds, you should first
get all the information you need and read the
documents published by the provider.

Anyone investing in funds and looking for information should read the fact
sheet or Key Investor Information Document (KIID) that is handed out when
buying units and is also available online (e.g. at www.swissfunddata.ch). The
KIID will have a chart showing the fund’s risk/reward profile. The chart of the
fund’s performance in the past has no bearing on the future given that the
situation on the financial markets can change, as can the asset manager.
Meanwhile, it is worth taking a look at the fund’s volume. Funds with less than
CHF 20 million in assets are often not profitable, and will have to grow or
merge in the medium term.

Commissions and fees

Cost overview
Thanks to the standardized TER figure, fund
investors know what costs they face.

The relevant figures when it comes to costs are the Total Expense Ratio (TER)
and the management fee. The TER expresses the sum of all costs charged on an
ongoing basis and reducing the return of the fund/ETF accordingly. While TERs
of 2% to 3% were once commonplace for actively managed funds, more than
1.5% is regarded as expensive these days. In the case of ETFs, the TER is around
0.3%. Added to these fees, retail investors also have to pay the custodian fee
charged by the bank and the transaction costs. There is also a fee to pay on the
issue or sale of fund units, and in some cases on redemption as well. The
transaction costs can be reduced by holding the units for the long term.

Taxes

Taxes for funds and The issue of taxes and investment funds is very
investors complex. Put simply, we can say the following.

Capital gains can be achieved without tax deductions and are free from tax. The
distributions made by a fund accrue to the investor’s income. Distributions
made to Swiss investors are subject to the deduction of withholding tax at 35%.
Investors may reclaim the withholding tax in full via their tax returns.

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BUYING AN INVESTMENT FUND

The key steps

Step by step
Thorough consideration before making an
investment will ensure satisfaction with the
fund. There are a few important steps to take
into account.

 Define your personal investment horizon
How long would you like to invest your money for, and how long are you
able to? Answering this question is crucial when it comes to selecting your
personal investment strategy.

 What level of risk are you willing to take on, and what level are you able
to?
Based on your current financial situation, how high is your risk tolerance and
your willingness to accept fluctuations in value?

 Avoid risk clusters

Don’t focus on the shares of just a few companies, and invest instead in a
broadly diversified portfolio of investment products.

 Choose an appropriate investment strategy

Remember the reasons why you have chosen your investment strategy. In
difficult periods on the markets, keep these reasons in mind and stick by
your strategy with a view to achieving your investment objective.

 ‘Too much trend-chasing leads to the poorhouse’

If you want to invest successfully over the long term, you should refrain from
following the herd and avoid making short-term purchases and sales. This
will save you from unnecessary costs.

 Where can you buy fund units?

You can buy fund units from your bank, and also via fund platforms or
independent institutions.

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 Publisher Swiss Funds & Asset Management Association SFAMA
P. O. Box, CH-4002 Basel
Phone +41 61 278 98 00
Fax +41 61 278 98 08
www.sfama.ch
office@sfama.ch

Editing PR-Box GmbH

Seraina Conrad
Sonnmattstrasse 1
CH-5304 Endingen
Phone +41 56 544 71 90
www.pr-box.ch
seraina.conrad@pr-box.ch

Layout Dieter Aegerter

Kettenackerweg 17
CH-4125 Riehen
Phone +41 79 653 13 92
dieter.aegerter@magnet.ch

Liability SFAMA accepts no liability whatsoever for the correctness of the text and figures stated in this
publication, in particular from third-party sources.

Copyright The reprinting and reproduction of the content of this publication (including excerpts) are permitted
provided the original source is acknowledged.

June 2017

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