Let’s say you are choosing between a huge pizza where each slice has a different topping and a huge pizza with a single topping. Intrigued by variety, it turns out that instead of having only Margarita, you can now grab a piece of Marinara, taste Quattro Stagioni or enjoy Cappriciosa.
The same goes for mutual funds. Buying into a mutual fund, an investor gets various pieces of the market and access to a well-balanced and diversified portfolio.
All mutual funds work in the same manner. Nonetheless, they can differ geographically, from country to country. Let’s take a deeper look and start with the basics of mutual funds.
Nuts and Bolts
A mutual fund is a type of investment fund that gathers money from a group of investors and spreads it across various securities. Investors have their share in a fund; it doesn’t matter how much you’ve put in. The huge plus that mutual funds have is that they help individuals with a small capital to have access to a good portfolio.
It means you don’t have to spend sleepless nights considering whether this bond is better than this stock. You just invest your funds in both and even more.
Can I Invest in a Fund Based Overseas?
You can only buy into funds that are registered with your country’s regulator. For example, non-UK residents can’t access UK funds.
Don’t confuse an international fund with a foreign fund. These are worlds apart. If a foreign fund is available for purchase only for its country residents, international funds can shape a basket of securities from any country except an investor’s home country.
Global funds is yet another story. Global funds can buy securities from all over the world.
What's in Common?
A lot. Firstly, all mutual funds take money from many investors to put them into various assets. Secondly, both individual investors and entities can buy into mutual funds. Thirdly, all mutual funds are subject to severe regulations, that vary by country and serve entirely for the clients' protection.
What's the Difference?
Mutual funds differ quite a lot by region. Let's start with the US.
European mutual funds are ruled by a special unit of the European Commission, known as the Undertakings for the Collective Investment of Transferable Securities. Their main regulation is similar to the ‘40s Act’: a fund must diversify investor’s money and avoid focusing on one stock.
To make your fund available to all investors across the European Union, you have to register your fund in one of the European countries. Your newly registered fund should comply with the regulations of the country in which it is registered and these differ from country to country. For instance, if your fund is based in Cyprus, it then will be governed by the Cyprus Securities and Exchange Commission.
Here the story is totally different. The Hong Kong market is regulated by the Securities and Futures Commission alongside the Mandatory Provident Funds Authority. While the former controls all funds, the latter functions as a pension fund and regulates retirement-oriented funds in Hong Kong. Therefore, funds aimed for investment in retirement accounts are overseen by MPFA and SFC.
Regulations imposed by MPFA are severe. The reason behind this is the body wants to protect citizens against unhealthy investments.
The authority adheres to a list of selected exchanges and doesn’t allow more than 10% of its equities to be listed on exchanges that are not included in the list.
What’s All About
All countries have their own peculiarities when it comes to mutual funds and their regulators. It’s crucial to know and understand the differences, especially if you are planning to invest in a fund.