An Introduction to Mutual Funds Worldwide

Chapter4

CONSTITUTION AND CONSTRAINTS

This chapter looks at the practical steps and documents required to set up a mutual fund. Day-to-day management and administration of the fund's capital and income is described, followed by termination or winding-up procedures and the charges paid by investors.

4.1 ESTABLISHMENT, SET-UP AND CHANGES

Establishment

Establishing a mutual fund follows a similar procedure in all countries. First, a management company determines the investment opportunity for a fund with a particular investment objective and policy, then decides its appropriate type or construction, either the corporate type, as an investment company, or the contractual type, as a unit or investment trust. It is worth noting that, in law, only the corporate type has a ‘legal personality’.

Usually in conjunction with an independent custodian, depositary or trustee, the fund's constitutional documents are prepared and executed as legally binding instruments. The officers and agents, such as the investment manager, transfer agent, selling agent, administrator, auditor, are identified and then the terms and conditions upon which the fund will be offered and operated are settled and the charges and fees of the various parties agreed. Application for authorisation is then made to the relevant authority.

Depending on the jurisdiction, authorisation of the management company and the other parties concerned either precedes any application for authorisation of the mutual fund, or it is carried ...