Questions and Answers / What is a unit fund?

What is a unit fund?

Unit investment fund (UIF) is the aggregate of assets owned by investors participating in the fund, managed by an asset management company and accounted separately from its operating results.

More simply, unit investment fund represents a peculiar accumulator of temporarily free money resources of individuals and legal entities, directed for acquisition of securities, real property, currency values and other assets. Accumulation of monetary funds allows to form a diversified investment portfolio enabling considerable reduction of investment risk.

Purchasing securities from the UIF, investor becomes a participant of the unit fund and receives its share in assets of the UIF. Income on investments is formed at the expense of the increase of the value of investment objects of the fund, and consequently of the fund’s interest (foreign exchange income) and distributions (dividend income).

Usually, dividend income accounts for a small portion of the total profit from the ownership of the investment interest and may be not paid at all, but capitalized, i.e. directed for new investments.

Foreign exchange income is the primary source of profit for investor. On this basis, the major activity and performance indicator of the fund is the dynamics of the value of its net assets just determining the value of the participating interest.

UIF is not a legal entity, and the only documents governing its activities include the rules of the UIF and prospectus of issue of investment certificates.

The following provisions are established in the rules, determining:

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activities of the supervisory board of the fund;

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method for determining the value of net assets and price of placement (purchase) of investment certificates;

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procedure for determining the amount of remuneration and expenses connected with activities of the UIF, which may be paid by the management company;

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procedure for distribution of profit of the UIF;

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procedure and time frame for purchasing investment certificates by the management company;

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areas of investment.

In this way, the rules of the fund represent the master document determining activities of the fund and guaranteeing to the investor compliance with the investment strategy.

In addition, absence of the status of legal entity for the fund creates a special taxation regime for operations with assets of the fund. Operations with the securities portfolio of the investment fund are not subject to taxation, i.e. all the received profit may directed for new investments. In the event of ordinary investment practice, investor would have to pay taxes on each profitable transaction, resulting in the considerable restriction of the field of the future investment activities. In the event of investment funds, taxation shall only apply to transactions of disposal of securities of the fund (i.e. investor’s withdrawal from the fund). Detailed information on the taxation regime is available in the section «Taxation».

Securities portfolio management requires considerable experience and professional training level. Management of the investment fund is carried out by an asset management company. Asset management activities shall be licensed and strictly regulated by the State Securities and Stock Market Commission (SSSMC).

The fund may be only managed by certified employees of the asset management company, who have the adequate education, professional training level and successfully passed the relevant state examination for the right to manage investment funds.

Asset management company shall from time to time report on its operating results to investors of the SSSMC, which enables to control expenses and structure of assets of the UIF.