Aviabiz and Slogold Offshore Services

Serving from 2001 - 2017

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What is a Mutual Fund, Pooled Fund or Open Ended Investment Trust?

Investing in mutual fund

A mutual fund is basically a type of investment vehicle that allows individual investors with a likeminded interest to pool their money and have the benefit of professional money management. The professional manager has the responsibility of selecting stocks, bonds or other investments that are consistent with the fund’s goal or objectives. As an example, investors participating in the Research Fund are doing so because they want to own a portfolio of stocks involved in the research industry. In reality, they are a part owner (along with the other fund investors) of a very large investment portfolio. The portfolio may be a collection of 50 companies worldwide that are involved in the research industry. To duplicate such a portfolio themselves, investors would need to commit a great deal of time and capital. But, with an investment of only $25,000 in the fund, the investor has the benefits of instant diversification and the knowledge that a professional advisor is managing the portfolio for them. Naturally, the fund manager receives a salary from the mutual fund firm and may also receive a bonus that is directly related to how well he or she manages the portfolio for the investors. All mutual fund companies charge a management fee for the services they are providing. Even so-called no load companies are getting their money from somewhere.

The equivalent British term to the American “mutual fund” is “pooled fund” or “open investment trust”. In reality, the open-ended trusts that can be seen listed in the London Financial Times are the same type of investment vehicles as the American “mutual fund”. To be sure, there are many more terms and detailed explanations that go along with this. There are a number of investments in Europe that have a different name, but in essence work the same way.

Why are Offshore Mutual Funds Tax-Free?

Just like some jurisdictions permit interest from bank accounts to be tax exempt, the same is true for mutual funds. Some of the more popular offshore mutual fund jurisdictions, such as the Cayman Islands, Bahamas, Bermuda, Channel Islands or the Isle of Man permit mutual funds to be exempt from local taxation as long as the investors are not residents of these locations. Mutual fund companies use this to their advantage.

Summary

A Mutual Fund is a company that invests most of its money in publicly traded securities (stocks and bonds) of business corporations. It obtains capital by issuing and selling its shares (common Stock) to investors, who are the company shareholders.

Mutual funds shares are not traded through stock exchanges or over the counter markets; instead the Fund itself sells shares whenever investors want to buy and repurchases shares at any time at their current market value. The market value of a mutual fund usually is based on the overall value of the fund's portfolio of securities and fluctuates as the value of the securities fluctuates.

After deduction of expenses for management services, interest and dividend income is declared as an income dividend and paid to shareholders, usually four times a year or within a specified period after demand is made. When a fund sells its investment at appreciated prices, the profit is declared as capital gain dividend and paid, usually once a year to shareholders.

Types of funds:

Public Funds: Offers any shares for subscription or purchase to any member of the general public or any section thereof and is not a private fund or professional fund.

Private Funds Less than 50 investors and the constitutional documents prohibit the offering of shares to the general public.

Professional Funds Offered only to professional investors and the initial investment in respect of each investor is not less than US$100,000 (or equivalent) and is designated as a professional fund by its regulations.

Jurisdictions

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