German Mutual Fund Market

Question 1

Two types of funds

Answer 1

• Publikumsfonds: 
  - Mutual funds for retail investors
• Spezialfonds: 
  - Funds for institutional investors: insurance companies, banks, foundations
  - Less strictly regulated

Question 2

German fund types: Capital guaranteed funds (“Garantiefonds”)

Answer 2

• Fund guarantees a minimum capital level at a certain date in the future
• Fund’s net asset value per share can be below that guaranteed level before the guarantee date
• Additional fees when guarantee levels are reset (e.g. 2.5%)

Question 3

German fund types: Real estate funds (“Immobilienfonds”)

Answer 3

• Open-end real estate funds (“offene Immobilienfonds”)

• Hold many different estates
• investors can redeem their money (funds hold mix of bonds and real estate)

• Closed-end real estate funds (“geschlossene Immobilienfonds”):

• Own few or just a single estate
• Legally, not funds, as investors become fellow entrepreneurs
• Organized as KG or GBR
• Minimum investment period
• High minimum investment required

Question 4

Real estate investment in the U.S.

Answer 4

• Real estate investment trust (REITs) are publicly traded companies that are managed by a board of directors
• Can be specialized to specific property type or hold many different estate types
• Some REITs also engage in real estate financing
• Required by law to pay out 90% of income

Question 5

Governance of German Funds

Answer 5

• Regulated by the “Kapitalanlagengesetz” (KAGB)
• Investment companies must register with the BaFin
• Assets of the fund are separated from the investment management company
• No board of directors
• The depositary bank has monitoring duties
• The depository bank organizes purchase and sell of the fund’s shares and determines daily net asset value

Question 6

German Investment Act: “Kapitalanlagengesetz” (KAGB)

Answer 6

• Fund's names must not be misleading
• Disclosure requirements
  - Annual and semi-annual report
  - Prospectus and simplified prospectus
• BaFin receives different statement of information all transaction information

Question 7

Taxation of German mutual funds until 2017

Answer 7

• No taxation at the fund level
• Investors pay capital gain tax when selling
• Investors must pay taxes on distributions
• Capital gain tax: 25% + Soli 5,5%
• Advantage: Gains can be reinvested without deduction

Question 8

Since 2018: Investmentsteurreformgesetz

Answer 8

• Funds have to pay 15% tax on dividens from German companies
• Taxes on dividends are no longer deductible from the capital gains tax
• To offset this disadvantage, investors pay capital gain tax only on 70% of the gains for equity funds
• Distributions of equity funds are also reduced by a factor of 0.7
• Investors have to pay an annual tax on the value increase of their fund investment

Question 9

Implications of the divided taxation on small retail investors

Answer 9

• In Germany there is a €801 tax allowance. If capital gains do not exceed this amount, investors do not pay any taxes
• The new tax regime makes retail investors with little capital gains worse off