Umbrella fund

From CEOpedia | Management online

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.

Examples of Umbrella fund

  • The HSBC Investment Funds is an example of an umbrella fund. It is an open-ended umbrella fund, which consists of a range of sub-funds, each offering different investment objectives and risk/ reward profiles. All of the sub-funds are registered in Luxembourg.
  • The UBS Funds is another example of an umbrella fund. It is a Luxembourg-domiciled umbrella fund, which consists of several sub-funds. UBS Funds offers investors access to global and regional equity and bond markets, as well as alternative and money market investments.
  • The Vanguard Fund is a third example of an umbrella fund. It consists of several sub-funds, which are registered in the Netherlands, UK, and Ireland. Vanguard Fund offers investors access to a range of asset classes, including equities, bonds, commodities, and alternative investments.

Advantages of Umbrella fund

An Umbrella fund offers multiple advantages to investors. These include:

  • Lower costs: Investors benefit from lower costs associated with the umbrella fund structure, as operational and administrative costs are shared across multiple sub-funds.
  • Flexibility: Investors can easily redeploy their funds from one sub-fund to another, allowing them to diversify their investments quickly and efficiently.
  • Transparency: Investors are provided with greater transparency into their investments as all financial information related to the sub-funds is disclosed.
  • Liquidity: Investors can access their funds more quickly as the umbrella fund structure offers greater liquidity.
  • Professional Management: Investors benefit from the expertise of the umbrella fund manager in managing the fund and its sub-funds.

Limitations of Umbrella fund

An Umbrella fund comes with certain limitations. These include:

  • Investment Restrictions - Each sub-fund within the umbrella fund typically has its own restrictions, such as the types of investments allowed and the maximum risk level. These restrictions must be adhered to, which may limit the scope of investments available to the fund.
  • Limited Access - Investors may have limited access to the sub-funds within the umbrella fund and may only be able to access certain funds at certain times, depending on the terms of the umbrella fund.
  • High Fees - A large umbrella fund may have higher administration fees associated with it, as the various sub-funds have to be managed and monitored.
  • Limited Transparency - It can be difficult to see exactly how the money is being invested, which can limit the transparency of the fund.

Other approaches related to Umbrella fund

  • Investment diversification: Umbrella funds offer investors the opportunity to diversify their investments across different asset classes and geographic regions. This enables investors to spread the risk of their investments, as well as to take advantage of any potential growth opportunities.
  • Economies of scale: Umbrella funds allow investors to combine their investments and benefit from economies of scale. This means that they can benefit from lower costs, which can lead to higher returns.
  • Tax efficiency: Umbrella funds can be structured in such a way that investors may benefit from tax efficient investment strategies. This could include a range of measures such as tax-deferred growth, tax-free reinvestment, and the ability to offset losses against gains.

In summary, Umbrella funds offer investors the opportunity to diversify their investments, benefit from economies of scale, and potentially gain from tax efficiency. This makes them an attractive option for investors who are looking to maximise their returns.


  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

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Author: Weronika Kaca