The anatomy of a SICAV | Business

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A mutual fund is a common investment arrangement that allows investors to invest indirectly in a wide range of investment instruments by purchasing shares in an investment fund and, although they do not own the instruments themselves, gain or lose depending on their collective overall performance.

Pooling refers to investor money which is combined to purchase investment instruments for the benefit of all investors.

When a SICAV purchases an investment instrument, it is not the individual unitholder who owns it. It is the Unity Trust that does this. Thus, the investor cannot claim to hold any part of a particular instrument in which the mutual fund invests.

Pooling the money of several makes it possible to invest in instruments, such as real estate, that some investors would not normally be able to purchase due to their limited financial resources. Buying units in a fund that invests in such an instrument allows the investor to participate indirectly in its ownership.

A mutual fund is usually divided into several funds, which are actually investment portfolios. Some funds are dedicated funds, such as equity funds or money market funds. In such cases, they invest primarily in a particular type of securities subject to the limits imposed by regulations and the trust indenture. An equity fund, for example, may invest in fixed income securities, but not more than a prescribed percentage of the fund.

Some funds are mixed funds, also called mixed funds, which invest in more than one type of security. The advantage of such funds is that they save investors from having to invest in multiple funds to achieve their goals. On the other hand, the way they invest funds among different asset classes may not be suitable for some investors.

The names of the funds give a good indication of the instruments in which they invest and the investment objectives they are expected to achieve. For example, a money market fund invests in money market instruments and a capital growth fund invests primarily for capital growth or appreciation.

A fund is valued periodically – some daily, others weekly or at some other interval. The values ​​of the funds fluctuate according to changes in the market prices of the instruments that make up the fund. The net asset value is of great importance. This is the sum of the market value of all instruments in the fund less management fees and other charges.

THE OFFER AND THE OFFER

The funds are divided into units, and the value of each unit is determined by dividing the total number of units by the net asset value of the fund to determine the unit value, which is a very useful and convenient number.

Unit value makes it easier to buy and redeem units. In many cases, there is only one unit value. In others, there are two – the offer and the offer. The difference between them is the associated sales and marketing costs that are added to the price of the offer. In such a case, investors buy at the offer price and sell their units back to the SICAV at the offer price.

Unit value allows a unitholder to easily calculate returns on an investment in a trust by determining the difference between the current price and the purchase price and expressing it as a percentage of the purchase price.

As an investment company, the trust is governed by a trust deed, which is a legal document that explains how the manager and the trustee should act in the operation of the trust, thereby protecting the unitholders.

The mutual fund also has a board of directors, a legal entity independent of the managers, which acts as the custodian of the investments, cash and income of the mutual fund and holds the property of the investments in trust for them. unitholders.

There is also a management company, which is responsible for the day-to-day administration of the trust, including the sale and redemption of units, investment of funds, valuation of units, management of the financial and accounting affairs of the trust. the trust, welfare, marketing and promotion staff.

The way mutual funds are organized ensures that there is a separation of ownership, custody and management, which serves to effectively protect the interests of unitholders.

Mutual funds that operate in Jamaica must be registered with the Financial Services Commission. Funds are open in the sense that the mutual fund creates and issues new units when there is a demand for them and redeems existing units, making them very liquid instruments.

Oran A. Hall, author of Understanding Investments and main author of The personal financial planning manual, offers personal advice and guidance on financial planning.

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