The Securities and Exchange Commission (SEC) is crafting the rules on how investment companies will be able to offer umbrella funds that can create sub-funds with segregated assets and liabilities.
An umbrella fund is a registered, open-end investment company that consists of two or more sub-funds that may pursue different investment objectives, policies and strategies
This will allow investments funds such as mutual funds to diversify the sectors they can invest in while offering the same fund to investors.
This in turn may lower the risk that investor take in when investing given that the fund now can diversify where to put the pool of investments that investors put in.
Under the SEC’s draft rules, an existing investment company may convert into an umbrella fund by amending its articles of incorporation and registration statement to conform with the requirements set by the proposed guidelines.
All investment companies that intend to create sub-funds are required to include “umbrella fund” in their respective names.
An umbrella fund must consist of at least two sub-funds at any time during its operation.
Before offering shares or units pertaining to any of its sub-funds, the umbrella fund may register all of its securities at once and allocate the approved shares or units to any of its sub-funds.
A sub-fund is only allowed to issue a single type of security.
The umbrella fund is not allowed to issue securities in its own name, except in connection with any of its sub-funds.
“In offering securities to the public, the umbrella fund must be licensed to act as an investment company,” the SEC said.
An umbrella fund is not allowed to establish and offer the securities of a new sub-fund unless the SEC has approved the securities.
“Each sub-fund of an umbrella fund must indicate in its name its classification whether it is an equity fund, bond or fixed income fund, balanced fund, money market fund, index fund, feeder fund, fund-of-funds, co-managed Fund or multi-asset/asset allocation fund,” the SEC said.
