Investment funds

Before investing, it is important that you determine your investment horizon. An investment subfund may be suitable for short-term or long-term investments, depending on its risk profile. You can seek advice from eg your bank on investing through investment funds.

There are about 500 different investment subfunds in Denmark. Roughly speaking, they can be divided into four different types:

• Equity subfunds investing in Denmark or abroad
• Bond subfunds investing in Denmark or abroad
• Mixed subfunds investing in bonds as well as equities
• Specialised subfunds investing in a region, a country or a single sector

Investment subfunds operate according to a principle of risk diversification and portfolio management. But the subfunds have different risks, different return potentials and different pricing.
Risk and return go hand in hand. Investment subfunds with very low risk offer limited return potential, while high-risk subfunds with volatile pricing offer the highest return potential. Most investors diversify their investments across different types of subfunds.

As a holder of investment certificates, you pay annual charges. The charges are applied to cover the costs of the subfund. These costs are administration and trading costs and are deducted before calculation of returns and dividends.
The annual expense ratio (AER) captures all charges payable to the investment fund. When you invest in an investment fund, your bank must disclose the AER.

The AER also appears from the annual statement you receive from the bank and is based on a holding period of seven years. If your holding period is shorter or longer, you can use our AER calculator to calculate the AER for your expected holding period.

Passive subfunds tracking the market closely will typically be less expensive, while actively managed subfunds will be more expensive. Active management offers the potential – but no guarantee – of an above-market return, for instance when markets fall. For many actively managed subfunds, charges include advisory services, while for others, you pay separately for advisory services or portfolio management. For more information, please contact your bank or adviser, or see the statistics on this page. 

An investment fund is a collection of investment subfunds. Each investment subfund focuses on a specific investment area, such as Danish bonds or European equities.

Risk diversification

An investment fund always diversifies its investments. Investment funds must distribute the net asset value of the individual subfund on different securities. An equity subfund must invest in at least 12 or 13 different equities, but the number is typically far higher than 30. Bond subfunds are subject to similar risk diversification requirements.

Portfolio management

An investment fund has portfolio managers whose task is to manage investors' money by adjusting investments based on market research. In an actively managed subfund, such management will include the assessment of companies, industries, currencies, interest rates, macroeconomic conditions, political conditions and the allocation between different securities for the purpose of composing an investment portfolio with the highest expected return.
Some investment subfunds pursue an active strategy the aim of which is to achieve a return matching or outperforming the market. Other subfunds pursue a passive strategy the aim of which is to match market performance after deduction of charges. Both strategies have its advantages and disadvantages.