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New Retirement Plan In Germany May Spur Mutual- Fund BoomBy: Robert Bonte-Friedheim When is a fund not a fund? AVSVs are defined under a new law that came into effect April 1. Each AVSV will require regulatory approval and Germany's top fund houses say the first AVSVs may hit the market in midsummer. By law, AVSVs will have to keep between 21% and 75% of their assets in stocks; stocks and real estate together must account for at least 51%; and real-estate assets alone may not exceed 30%. It sounds pedantic, but parliamentary committees had wrangled over these numbers since 1995, partly because Germans traditionally considered only bonds to be safe investments. Parliament "is saying that this form of investment fund is particularly suited for retirement provision," said Thomas Kalich, spokesman for Deutscher Investment Trust, the fund arm of Dresdner Bank AG. The official stamp of approval matters in Germany, and fund marketers expect the creation of AVSVs to give their business, which had already been growing strongly, another shot in the arm. "It gives us the opportunity to provide a new product under the heading of solving investors' retirement problems," says Eckhard Bergmann, spokesman for Deutsche Bank's fund unit. The creation of AVSVs may sound like name-game tomfoolery, but looking to the future, it is a big step forward for German investment houses. The fund industry had been locked in battle with life-insurance companies about which industry was best suited to manage pension savings. Germany will have to reform its pay-as-you-go pension system because the aging population makes current arrangements unsustainable-and managing Germans' retirement savings promises to be a lucrative business. Until now, Germans treated life-insurance policies as the proper vehicle for oldage savings-which is why life policies have tax advantages. Now that the fund industry has its own old-age product, it hopes to get a tax break, too. "I assume that some kind of tax advantage will come in the big tax reform that is to take effect Jan. 1, 2000," says Mr. Laux.
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