For regulatory purposes, there are two essential scheme documents:

  1. the instrument of incorporation (if a company) or the trust deed (if a trust‘;
  2. the prospectus or offering document, also known in some jurisdictions as scheme particulars.

It is the instrument of incorporation that establishes the mutual fund, and a fund established as a company may well have a certificate of incorporation before it applies for authorisation. However, it cannot be offered to the public until it has an order of authorisation.

Other documents include the regular reports issued by the fund or its manager in accordance with regulatory requirements and, if the fund is listed on a stock exchange, the listing notice.

Instrument of incorporation

FundsThis is a publicly available document that must be filed along with other material before the fund can be launched. Regulations prescribe what it must contain and, whether it is the Memorandum and Articles for a company or a deed for a trust, the minimum contents usually are:

  1. name, type, size and currency of fund;
  2. names and official addresses of the promoters (manager, custodian/trustee);
  3. country of incorporation and governing law;
  4. a provision that share- or unit holders’ liability to make payments is limited to the amount payable for the purchase of shares or units;
  5. duration of the fund if it is to terminate at some future date;
  6. authority for charges to be levied and the maximum rates of those charges;
  7. restrictions on how the fund may be invested;
  8. whether different classes of share or type of unit may
  9. be issued and a description of each;
  10. if the fund is only to be held by certain types of
  11. investor, a statement to that effect;
  12. provisions covering the issue or non-issue of registered or bearer certificates;
  13. other provisions required to enable the fund to pursue its purpose or included as a restatement of applicable statutory provisions, such as permitted investments, power of manager to be a holder, procedures for meetings and for termination.

Prospectus

A prospectus is a legal document intended to provide potential investors with important information about the fund. There are stiff penalties for including misleading or inaccurate statements and for omissions. Investors use and may rely upon this information when deciding whether to invest in the fund. It is the manager’s responsibility to provide a prospectus to the investor, but the investor’s responsibility to read it.

The prospectus must be dated and reviewed and updated periodically, usually at least annually. Usual contents repeat some matters contained in the instrument of incorporation (or deed or company prospectus) and include:

  1. detailed information about the manager, custodian/ trustee, investment adviser, auditor, registrar/transfer agent and how each may be contacted;
  2. name, type and date of establishment of the fund, and, if a company, its capital structure, and if a trust, its unit types;
  3. investment objectives, policies, restrictions and risks;
  4. how shares or units may be bought or sold, any maximum or minimum for the amount of investment or holding, how unit prices are determined, and what charges are levied upon entry or exit;
  5. what charges may be levied upon the fund, how they are computed and the maximum and minimum amounts or rates if applicable;
  6. the accounting date of the fund, the accounting periods for reporting purposes, and the dates and frequency of reports;
  7. when and how net income will be allocated and distributed to holders;
  8. general descriptions of the taxation of the fund and of investors;
  9. what matters require holders’ approval and procedures for meetings and voting;
  10. descriptions of circumstances when dealings may be suspended;
  11. procedure for termination or winding-up;
  12. any other information that ought reasonably to be included to enable investors to make informed decisions.

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Mutual Funds’ Scheme Documents