Valuation
The value of a mutual fund depends on the prices or values of the underlying securities and other assets held by the fund. The manager must carry out regular valuations of the fund’s property, so that the prices at Which shares or units may be bought and sold can be calculated. Regulations usually prescribe how often Valuations must be performed. In the UK, for example, the required minimum frequency is twice each month The majority of funds are valued on a daily basis, but some managers prefer a weekly valuation, and some carry out more than one each day. Read the rest of this entry »
For regulatory purposes, there are two essential scheme documents:
- the instrument of incorporation (if a company) or the trust deed (if a trust‘;
- 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. Read the rest of this entry »
Buying and selling
Although some funds are exchange-traded, the shares or units of most mutual funds are bought and sold by making an application to the manager. This can be in writing, by telephone or via the Internet, directly by the investor or by the investor’s adviser or agent. Many managers have pre-printed application and redemption forms and their advertisements and other promotional mailing material often include an application form. Once accepted by the manager, applications constitute a binding contract, and the manager issues a contract note stating the details of the transaction.
For purchases, payment can be included with the application. Some managers may insist on this for the initial investment of a first-time investor. Alternatively, the contract note will specify when payment is required. For large investments, the manager may be required by law to obtain confirmation of the investor’s identification and of the source or destination of money involved in the transaction: if there is any suspicion that the money is being laundered, or used to support terrorist activity, the suspicion must be reported to the authorities. Read the rest of this entry »
Institutions obtain administrative and, sometimes, taxation benefits by using mutual funds to manage their own assets. Such funds are invariably not available to the general public. Funds that are authorised to be promoted to the general public (frequently referred to as ‘retail funds‘), usually extol the benefits to the private individual, namely:
1. Small investment required
Although both minimum holdings and minimum initial amounts are usually required, individuals can invest comparatively small sums of money in mutual funds, particularly through plans that accept regular subscriptions. So-called ’small investors‘ can thereby obtain the benefits of worldwide economic activity (hopefully growth) rather than allowing these to be enjoyed by the banks (and their shareholders) and others with whom they deposit their funds in return for an interest income. Read the rest of this entry »
MARKETING
The extent to which funds can be marketed within a state or country or across state or national borders varies from country to country and depends on local laws and the nature of any federation or other affiliation which determines where the ultimate authority lies.
Most jurisdictions permit the marketing of mutual funds, but the only funds they will allow to be marketed freely are those they have authorised or which have been authorised by a federated or affiliated jurisdiction as eligible for marketing or promotion to the general public and registered as such. The marketing of other funds or securities will be either prohibited or restricted to promotion to professional or institutional investors only. Read the rest of this entry »
Mutual funds are run by professional fund managers, who may choose to appoint other professional bodies to undertake, under contract, one or more aspects of running their funds, such as:
- investment managers - to manage the portfolio of investments;
- marketing companies - to advertise and promote the funds;
- selling agents - to actively sell the funds‘ shares or units;
- administrators - to perform accounting and servicing functions;
- registrars or transfer agents - to maintain the registers of share- or unit holders.
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