The short answer
An ETF is a fund that holds many investments at once and trades on the stock exchange, like a share. Most copy an index, cost little per year and can be bought monthly with a savings plan.
One basket, many companies
You don't have to pick single companies. You buy one fund that holds hundreds or thousands of them. ETF stands for exchange-traded fund, which just means you buy and sell it on a stock exchange, like a share.
Why bother with a basket? Try it. Put imaginary money in one company, then in a basket of 100, and see what a bad year does to each.
Play with it
€1,000 in one company, or spread over 100?
Made-up numbers to show the idea. Real ETFs don't hold every company in equal amounts, and real markets can fall by more than 20%.
What could €300 a month turn into?
Meet Alex. He's hypothetical, the rules are real. He invests €300 every month in an ETF that tracks companies from many countries. Here's one possible path, with every assumption on the table.
Profile
- Lives in
- Munich
- Goal
- Long-term savings
- Starts
- Today
Inputs
- Monthly plan
- €300
- Horizon
- 30 years
- Fund cost (TER)
- 0.20% a year
What happens
Estimated value after 30 years€281,411Alex pays in €108,000. The rest, about €173,411, is growth earning more growth.
Why
Most of the growth shows up late, so time does a lot of the work. Fund costs look tiny, yet without them the result would be about €10,943 higher.
Assumes 6% a year before costs, payments at the end of each month, no taxes, no inflation. Real markets move up and down. Change Alex’s numbers
What's inside, and what it costs you
The index. Most ETFs copy an index, a list of companies chosen by fixed rules. Nobody picks stocks on a hunch. If the index changes, the fund follows.
Developed marketsEmerging markets
The cost. The fund charges a yearly fee called the TER (total expense ratio). It's taken from the fund itself, so you never see a bill. What an ETF really costs
Income. An accumulating fund (Acc) reinvests dividends for you. A distributing fund (Dist) pays them into your account. Accumulating vs distributing
Buying regularly. Many people in Germany use a Sparplan, a savings plan that buys the ETF automatically every month. How a savings plan works
ETF names look like Wi-Fi passwords. Let's decode one.
Pick an example and tap each word.
Tap a word to see what it means.
Want the legal side?The rules, the exact numbers and the edge cases. Open it whenever you're curious.- How German law sees your ETF
How German law sees your ETF
- Investmentfonds
- The legal category for funds, including ETFs. German investment fund tax law (InvStG) applies to them.
- Aktienfonds
- An equity fund: invests more than 50% of its assets in shares, permanently (§ 2 (6) InvStG).
- Mischfonds
- A mixed fund: at least 25% in shares (§ 2 (7) InvStG).
- Teilfreistellung
- Part of the income is tax-free: 30% for equity funds, 15% for mixed funds (§ 20 InvStG). Teilfreistellung explained
- Depot
- The securities account at your bank or broker where your ETFs are held. What is a Depot?
Fund categories and partial exemption
- Equity fund (Aktienfonds): more than 50% in shares. 30% of income tax-free.
- Mixed fund (Mischfonds): at least 25% in shares. 15% of income tax-free.
Source: § 2 InvStG: equity funds and mixed funds (paras. 6 and 7) · § 20 InvStG: Teilfreistellung
Before you buy your first one
- One ETF can give you a small share in many companies at low cost.
- Check three things in the name and factsheet: the index, the yearly cost and Acc or Dist.
- Most broad stock ETFs count as equity funds in Germany. That matters for tax.
Check yourself
Your ETF holds 1,500 companies. Can it still lose value?
Video lesson · In the makingWhat is an ETF?
Official sources
- § 2 InvStG: equity funds and mixed funds (paras. 6 and 7)
- § 20 InvStG: Teilfreistellung
- Verbraucherzentrale: ETF-Kauf: criteria for choosing an ETF
Last checked:
We explain how the German rules work in general. This isn't personal financial, tax or legal advice. Investments can lose value.