A mutual fund is an unincorporated entity consisting of the assets transferred by investors (individuals or legal entities) for trust management to a managing company in order to gain growth of such property. Investor, who invested monetary funds into a mutual fun, becomes the owner of investment units (a stockholder).
The purpose of a mutual fund is raising profit from assets, united into the fund, and equal distribution of the profit raised among the investors (stockholders). Investment unit (unit) is a registered security, certifying the right of the owner to place demands on the fund manager to properly manage the fund’s assets and redeem the units in accordance with the fund’s rules. Investment units thus certify the share of the investor in the fund’s property and the right of the investor to receive from the mutual fund monetary funds equivalent to above mentioned share, i.e. to redeem the units at their current value. Each investment unit gives its owner equal rights. Accounting rights of the owners of investment units (registry) is performed by an independent organization, which accounts the rights of the owners of investment units.
Value of an investment unit
To determine the value of an investment unit the following formula applies. The managing company calculates the net asset value of a mutual fund at the end of each working day (for open funds) or at the date of interval closing (for interval funds).
Correctness of net asset value calculation is supervised by a specialized depositary and a competent federal authority. The net asset value is then divided by the number of investment units in the mutual fund. The quotient is the value of one investment unit which does not depend on new coming or leaving stockholders. Thus the income from each unit is the difference between the value of the unit at selling (redemption) and the value of the unit at purchasing.
Income from investment units
Income from an investment unit is calculated as the difference between the value of the unit at redemption and its value at purchase, multiplied by the number of units. Interests, dividends and other payments are neither computed nor performed.
Investment thesis
Assets of a mutual fund are invested in accordance with the investment thesis, written by the Managing Company in accordance with the current law and as part of the Rules of trust management of the fund. Investment thesis describes the mix and profile of assets of a given mutual fund. Investment objects, depending on the type of the fund, may be stocks, bank deposits, real estate.
Compliance with the investment thesis and legitimacy of the managing company with the mutual fund’s assets are monitored by the independent organization, a specialized depositary.
The property of a mutual fund is accounted by a managing company on a separate balance sheet. Auditing of the mutual fund balance is performed by an independent auditor.
The managing company must also engage an independent assessor to properly evaluate the assets bought into the mutual fund property, which do not have generally recognized listings (unlisted securities, etc). The managing company may involve one or more agents - professional stock market players having obtained the license from the appropriate federal authority to perform brokerage duties – to distribute, redeem and exchange the investment units. The agent should set up points of issuing, redemption and exchange of the investment units, where he will accept requests for purchase, redemption and exchange of units (in case an investor opts to exchange the units of one mutual fund to units of another mutual fund, which is managed by the same managing company).
In open mutual funds requests to purchase (redeem, exchange) units are accepted every working day; in interval mutual funds - in working days during certain periods of time (intervals).
During placement (redemption) of investment units the agent or the managing company usually charge a fee in the form of markup (discount), the amount of which is calculated as a percentage to the value of one unit.
Taxation of mutual funds
One of the peculiarities of mutual funds is that, in accordance with Russian legislation, being an unincorporated asset mutual funds do not pay the income tax. Taxes are paid by stockholders upon receipt of actual income.
Income in turn appears only after redemption of an investment unit. No taxation applies during the period of ownership of the investment unit. Russian resident individuals should pay 13% income tax of the amount of income from owning investment units, Russian resident legal persons should pay tax on profit at the effective rate.
Tel.:
- In Moscow: +7 (495) 925-80-00.
- For Russian regions: 8-800-200-23-26 (toll free).
- You can also find out more up-to-date information about mutual funds, the value of investment units by calling the automated directory assistance system of the Bank of Moscow: +7 (495) 925-80-00, ext. 80-00, Menu "4" (in the main menu press4).
