A fund savings plan – What is it?

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The fund savings plan is a form of savings plan, i.e. a form of pre-planned investment. In detail, the fund savings plan consists of a method for subscribing to a share of an mutual fund issued by banks or capital management companies (CMCs).

The saver who takes out a fund savings plan regularly pays in an amount which is used for the continuous purchase of units in an investment fund and corresponds to a UCITS “Undertaking for Collective Investment in Transferable Securities”. It’s a form of savings that was developed primarily for private investors who can’t set aside large amounts of capital but are willing to gradually invest in a mutual fund. As with every fund, the fund savings plan has certain costs, such as the fund’s asset-based and management fees, and the investor is remunerated on the basis of the return on investment (interest or coupons).

The advantages of the fund savings plan

There are several advantages to taking out a fund savings plan, in particular:

  • you decide in advance about your risk profile, the number of installments and the amount of each installment;
  • you determine the investment duration, which can be between one year and a maximum of 40 years, and the frequency of the payments, which can be made monthly, bimonthly, quarterly, bi-annually and annually;
  • you can also choose very small installments, in some cases of 25 euros each;
  • you'll have lower average management costs with ETF-based fund savings plans;
  • your investment is flexible, personalised and long-term compared to one-time purchases of funds or simple bank deposits.
  • you’re protected from sudden decisions that are triggered by emotions, such as those during market crashes or periods of downturn.

However, based on the risk profile, the basis of financial instruments invested in varies significantly. It can be a bond fund for a low risk profile, or a mixed fund or an equity fund if you prefer a higher risk.

As we have seen, there are certainly good reasons to opt for a fund savings plan, but it’s also important to highlight two aspects when entering into a fund savings plan:

  1. Despite diversification measures, the fund savings plans can also be partially exposed to market volatility.
  2. It’s good to take into account all of the costs, such as the initial charge when subscribing to the fund, which is higher than normal rates, as well as any closing and administrative costs that will inevitably affect the final return.

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