Investment Funds and Intermediaries

Investment Funds and Intermediaries

Investment Funds and their Intermediaries are regulated by the FSC Mauritius under the Securities Act 2005 and the Securities (Collective Investment Schemes and Closed-End Funds) Regulations 2008 which provide for a consolidated regulatory and supervisory framework. The FSC also recognizes foreign schemes, subject to conditions it deems necessary for the protection of participants in the CIS.

Intermediaries

Intermediaries, CIS Managers, Custodians and CIS Administrators, ensure the proper functioning of the CIS/CEF and undergo a rigorous assessment during licensing and once licensed, the FSC continually monitors them for compliance with supervisory, prudential and conduct of business norms as per the Securities Regulations.

Types of Schemes

Investors can select the type of Investment Funds, whether Collective Investment Schemes (CIS) or Closed-end Funds (CEF), that best suits their profile, risk tolerance and return objectives. The local laws are flexible in as much as it allow structures such as master-feeder, sub-funds, fund of funds, umbrella funds, protected cell companies (PCC), private equity funds/venture capital funds, limited partnerships and trusts to be organized as funds.

CISCEFCategoryFeatureRegulation
Retail Schemes (Domestic) Retail investors, i.e. no minimum investment amount prescribed Regulation 9
Global Schemes (GBC1) Similar to Retail Scheme, but entity holds a GBC1 Licence Regulation 16
Expert Fund (GBC1) Restricted to Expert or Sophisticated Investors Regulation 78
Professional CIS (GBC1) Available to Sophisticated Investors or where offering shares by way of private placements Regulation 75
Specialised CIS (GBC1) Suited for investments in high risk or illiquid asset types, e.g. real estate and derivatives Regulation 77
Reporting Issuer (GBC1) Meeting the prescribed criteria, e.g. minimum 100 investors Section 86(1)

 

Open End Fund/CIS/Mutual Fund

An open-end fund is a type of mutual fund that does not have any restrictions on the amount of shares that can be issued, although the fund may offer limited number of shares for each class/sub-fund. Shares are bought and sold on demand at their net asset value (NAV), based on the value of the fund’s underlying securities, calculated at the end of the trading day, which can be daily, weekly, monthly. When a large number of shares are redeemed, the fund may also sell some of its investments to pay the investor.

An open-end fund provides investors an easy, low-cost way to pool their money and purchase a diversified portfolio reflecting a specific investment objective, such as growth and income. Investors do not need a lot of money to gain entry into an open-end fund, making the fund easily accessible for investment.

 

Closed End Funds

A closed-end fund functions a lot like an exchange traded fund (ETF) rather than a mutual fund. CEFs issue a fixed number of shares that are traded on stock exchanges or in the over-the-counter (OTC) market. When the shares are sold, the fund does not issue more shares, unless making another offering.

Like open-end funds, CEFs have professional managers who assemble and manage the investment portfolios according to the goals and objectives of the funds. Unlike open-end funds, however, closed-end funds do not trade at their NAVs. Instead, their share prices are based on the supply of and demand for their funds and other fundamental factors. Consequently, closed-end funds can trade at premiums or discounts to their NAVs.

Similarities and Differences

Both open and closed end funds are run by portfolio managers with the assistance of advisers and consultants. Both types of funds mitigate security-specific risks by holding diversified investments and by having lower investment and operating costs due to the pooling of investor funds.

An open-end fund has unlimited shares in issue, whereas a closed-end fund has a fixed number of shares launched through IPOs. Shares of open-end funds do not usually trade on an exchange, are less liquid, and are issued at the NAV at the trading day’s end. Shares of closed-end funds usually trade on an exchange and are more liquid; prices trade at a significant discount or premium to the NAV based on supply and demand throughout the trading day.

Open-end funds must maintain cash reserves to meet redemptions. Since closed-end funds do not have that requirement, they may invest in illiquid stocks, securities or markets such as real estate. Generally, a closed-end fund is not required to buy its shares back from investors upon request.

Both CIS and CEFs are subject to more or less similar registration and regulation requirements, subject to the Securities Act 2005 and are subject to various requirements imposed for the protection of investors. 

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