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For many Swiss investors, investment funds are a key element of their investment strategy. But what exactly are they, and why are they so popular? This guide provides a clear overview – from the basics, pros and cons of investment funds, to how to choose the right fund for you. The goal: to equip you with sound knowledge so you can make informed investment decisions.
Table of Contents
What are investment funds and how do they work?
Put simply, an investment fund is a pool of money collected from many different investors. This bundled capital is invested by a fund management company into a range of securities – depending on the fund, this might include equities, bonds, real estate, or other asset classes.
As an investor, you buy units in the fund. The value of your share is based on the Net Asset Value (NAV), which is the total value of the fund divided by the number of outstanding units. Fund units can typically be bought or sold at any time at the current NAV. One key point: the money held in a fund is legally separated from the assets of the fund provider (referred to as “segregated assets”), meaning your capital remains protected even if the fund company becomes insolvent.
The fund is managed by a fund manager or a team of managers. These experts decide which securities to buy or sell, guiding the fund’s strategy.
The management follows clearly defined investment goals and guidelines – such as a Swiss blue-chip equity fund or a global balanced fund with 60% equities and 40% bonds. Fund managers monitor markets, analyse trends, and adjust the portfolio as needed.
In passively managed funds (like most ETFs), this active decision-making is skipped – the goal here is to replicate an index, and the “fund manager” mainly ensures that this tracking is precise.
Fund management generates costs that are passed on to investors. The main one is the management fee, or Total Expense Ratio (TER), which represents a percentage of your invested capital each year.
Actively managed funds usually have higher TERs (e.g. 1–2% per year), while passive index funds or ETFs tend to be cheaper (sometimes under 0.5%). Additional fees, such as upfront charges (when buying units) or redemption fees, may apply depending on the provider. However, modern platforms and digital banks often waive or significantly reduce these transaction-based fees.
Different types of investment funds
The fund market is diverse. Depending on the focus and strategy, investment funds can be divided into different categories. Here are some of the key types:
Equity funds primarily invest in stocks. They offer higher return potential through capital gains and dividends but come with greater volatility. Equity funds may be regional (e.g. Swiss stocks or emerging markets) or sector-specific (e.g. tech funds). Some are tailored for long-term investors, while others may suit those with higher risk appetite.
Bond funds invest in debt instruments issued by governments or companies. Returns come mainly from interest income. They generally experience less fluctuation than equity funds, but are not risk-free, as interest rate changes and credit risks apply. Bond funds suit investors looking for more stable, predictable returns and lower risk.
Balanced funds combine several asset classes, typically equities and bonds, and sometimes also real estate or commodities. The aim is broad diversification within a single fund. The mix of assets may be fixed (e.g. 50/50) or adjusted dynamically by fund managers. These funds offer a balance between risk and return and are attractive to those seeking an all-in-one solution for different market phases.
Real estate funds invest in property assets (e.g. offices, residential buildings, shopping centres) or real estate companies. Investors benefit from rental income and property value appreciation, without owning real estate directly. These funds can offer relatively stable payouts but carry specific risks (e.g. liquidity, regional market trends). Many real estate funds are traded on stock exchanges – similar to ETFs – making entry and exit easier.
ETFs vs. traditional investment funds
ETFs (Exchange Traded Funds) are a special type of investment fund. They are traded on stock exchanges and usually track an index (e.g. the SMI or S&P 500). Like stocks, they can be bought and sold throughout the day and are known for their low fees.
Traditional investment funds, on the other hand, are typically actively managed and traded through fund providers or banks at the daily NAV.
Each option has its advantages: ETFs offer lower costs and transparency, while actively managed funds may aim for outperformance or pursue specialised strategies. The choice depends on whether you simply want to follow the market or believe a manager can beat it – although outperformance is never guaranteed.
At Alpian, we deliberately build client portfolios using a selection of high-quality ETFs rather than individual stocks. This ensures broad diversification across asset classes. Importantly, Alpian forgoes common retrocessions (kickback commissions) and negotiates highly favourable terms with fund providers on behalf of clients. In many cases, this gives clients access to conditions usually reserved for large pension funds or institutional investors. This fund-based approach simplifies the investment process and ensures transparency in both costs and performance.
How to choose the right investment fund
Given the vast selection of funds available, it’s essential to find one that best suits your personal goals and circumstances. You should consider the following criteria:
Risk profile: Think about how much fluctuation and risk you are comfortable with. Could you tolerate temporary losses of 10%, 20% or more? If you invest offensively and have a high risk tolerance, you might opt for a higher equity allocation (e.g. equity funds or dynamic mixed funds). If you prefer safety, you may feel more comfortable with defensive funds (e.g. bond funds or low-risk mixed funds).
Investment objective: Define what you want to achieve with your investment. Are you saving long term for retirement, medium term for home ownership, or looking for regular income? Depending on your objective, different funds will be suitable. For growth, equity funds are appropriate; for regular income, bond or property funds might be more relevant. It’s important to choose a fund that matches your objective (e.g. a pension fund for retirement, or a sustainable fund if ESG criteria are important to you).
Investment horizon: Your time horizon is closely linked to your risk tolerance. In general, the longer you can stay invested, the more risk you can take, as time can offset short-term volatility. For short-term goals (under 3 years), equity funds may be less suitable – safer funds or savings accounts could be better. For long-term goals (10+ years), equity or growth-oriented mixed funds can unlock higher return potential.
Cost structure: Pay attention to the fund’s fees. Compare funds with a similar strategy – a lower TER means less of your return is eaten up by fees. In long-term investing, differences of just a few tenths of a percent can have a major impact. Also consider custody fees charged by your bank. Low-cost index funds/ETFs often have an edge in fees, whereas actively managed funds must justify higher costs through performance and service.
Active or passive investing?
Another factor to consider is whether you want to invest passively through ETFs or actively through traditional funds. Both can be successful but differ in their approach.
Passive investing through index funds and ETFs is low-cost and follows the market. Active investing gives a fund manager the chance to add value (e.g. through smart security selection or market timing), but also carries the risk of underperforming the benchmark.
Think about which philosophy appeals to you. Many investors now combine both approaches. Alpian has chosen to rely on carefully selected fund solutions with broad diversification, combined with selected ETFs to get the best of both worlds.
Tax considerations for investment funds
How are earnings from investment funds taxed in Switzerland? Here are the key points:
Dividends and interest: Fund distributions (e.g. dividends from equity funds, interest from bond funds) count as income and are taxable in Switzerland for private individuals – both federally and at the cantonal level. If a fund reinvests its income instead of distributing it (i.e. accumulation), it still needs to be declared and taxed as if it were paid out. Fund providers supply the necessary tax information.
Capital gains: Gains from selling fund units are generally tax-free in Switzerland for private investors. This means if your fund increases in value and you sell, you don’t pay tax on the profit – unless you’re considered a professional trader.
Withholding tax: Swiss funds often deduct 35% withholding tax from distributions. This can be reclaimed if declared in your tax return. Foreign funds may apply withholding taxes, which can sometimes be refunded depending on the double taxation agreement.
Special cases: Investment funds that own real estate directly (real estate funds) or generate certain non-distributing income may be taxed differently. When in doubt, consult the official tax information for the specific fund or visit the Swiss Tax Administration’s TaxInfo platform.
Conclusion: balancing opportunities and risks
Investment funds offer a simple way to invest with broad diversification and professional management. They allow access to different markets and asset classes, even with small amounts of capital.
But don’t forget the risks: funds are still exposed to market fluctuations, and losses are possible. Choosing the right fund should always be based on your personal situation – especially your risk appetite, goals and investment horizon. With the right fund and a clear strategy, however, investment funds can be a powerful tool for building wealth.
Contact Alpian for a personalised consultation to find the best investment for you.
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