Umbrella fund

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Umbrella fund
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An Umbrella fund is a single legal entity and a collective investment scheme which is divided into several sub-funds. A number of sub-funds, which have similar dealing arrangements, enable to attract many different groups of investors who are entitled to exchange rights in one sub-fund for rights in another. Umbrella funds have to evince all details related to sub-funds such as financial information and litigation. Annual financial statements for the umbrella fund as a whole where all sub-funds are included is obligatory [1] [2].

Umbrella fund characteristics

There are many attributes which characterize the umbrella fund as follows [3] [4] [5]:

  • Investors are allowed to switch between sub-funds usually with no exit/initial charge, which may be tax-efficient since that activity might not create a capital gain.
  • Umbrella funds have to be managed by one company and have to appoint only one depositary.
  • A number of sub-funds can be established with different investment policies and a separate portfolio of assets.
  • Sub-funds function as independents entities and usually have a different style of management.
  • Sub-funds have to invest the pooled money in different market sectors or geographical areas.
  • An umbrella fund must establish one document with regulations, one prospectus. As a result, the overheads of umbrella funds are lower than would be in case of investing separately in each sub-fund.
  • Under some regulations, the creditor's rights of one of the sub-funds can apply to all assets that an umbrella fund contains.
  • Shareholders are entitled to earnings, profit, assets only of the sub-fund in which they invest.
  • Thanks to this mechanism, if, for example, there is a loss in one sub-fund and profit in another, the tax will be calculated only on the difference in profit and loss. Without using the umbrella fund, the full amount of profitable investment tax has to be paid.

Footnotes

  1. Lhabitant F. (2006) p. 114
  2. Turner C. (2004) p. 50
  3. Haslehner W. (2018) chapter 1
  4. Nelken I. (2006) p. 60
  5. Lhabitant F. (2006) p. 114

References

Author: Weronika Kaca

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