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When investing in funds, every investor must of course weigh up the existing opportunities and risks of the fund. In the case of fund investments, these differ particularly in terms of the type of fund in which the capital is invested.
Risk of choosing the wrong investment sector
When buying an equity fund, the wrong choice of market sector (industry or investment region) may be one of the greatest risks in a fund investment. In addition to economic fluctuations, political crises or natural disasters can also limit the success of a regionally oriented equity fund.
Entire market environments can be distressed or even collapse as a result of sector-specific events such as the bursting of the bubble after the internet hype at the turn of the millennium or the nuclear super-GAU after the earthquake in Japan.
Economic risks in view
The danger of price losses is always latent when investing in equity funds. Price losses can be triggered by the investor buying a fund at an economically unfavourable time or missing the right moment to return the fund units in a corresponding economic situation. In this case, the investor has not paid sufficient attention to the economic development when making his investment decision.
The cyclical risk exists for all regional or sector-defined markets. Since the cyclical upswings and downswings in all regions or sectors usually do not occur at the same time, the investor naturally has the opportunity to switch between different upswing phases.
Liquidity risk with real estate funds
Shares or other securities can be turned into money relatively quickly by the fund companies on the stock exchanges, which is why there can hardly be any liquidity crises for funds that invest in them. The situation is different for real estate funds, however.
When, for example, the government announced a draft law to regulate open-ended real estate funds in spring 2010, some fund companies were forced to suspend further disbursements of their corresponding financial products. Many open-ended real estate funds were closed in the area of redemption.
The Ministry of Finance had published a draft which, among other things, provided for the abolition of the daily availability of units in open-ended real estate funds. As a result, many investors had reclaimed their capital. This should have resulted in rapid sales of real estate holdings if the investment companies had not suspended the redemptions. Further sales as a chain reaction would otherwise have been the consequence.
Special assets prevent bankruptcy risk
Open-ended investment funds have a great advantage in that the investors' assets do not become the property of the investment company like in case of platform Exness but are regarded as special assets that may not be affected even if the investment company becomes insolvent.
The special assets are the investment assets of the fund investors. The special assets are protected both from changes in the value of the other funds of the investment company and from access by the investment company itself or its creditors (even in the event of insolvency).
Risk diversification not given
Risk diversification, the most popular means of limiting investment risk in open-ended funds, takes place only to a very limited extent in closed-ended funds. The beneficial effects for investors do not apply here. Closed-end funds are therefore inherently subject to higher risks.
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