An important point to consider is this: Will the profits made by the fund be reinvested in the fund or distributed to its investors in the form of dividends, i.e. does the fund issue capitalization or distribution shares? There are mutual funds that offer you the choice between these two types of units and shares. The impact is primarily of a fiscal nature: While dividends paid by the fund are usually taxable at the level of the investor, reinvested earnings increase the value of the fund’s units and shares, and the capital gain realised by the investor when selling his shares may be exempt from taxes if he holds the shares beyond a certain minimum period.
Itis worthwhile finding out if the fund you have chosen is a “traditional” fund that manages one single portfolio of assets, or the sub-fund of a so-called “umbrella fund”. An umbrella fund is a single legal structure, under the roof of which a more or less large number of sub-funds or compartments are created. These sub-funds are distinct from each other and have their own investment policy, their own investors etc. Each sub-fund operates exactly like a traditional fund.
Being invested in a sub-fund of an umbrella fund can however be advantageous for you if you want to change your investment strategy. Most umbrella funds allow their investors to switch from one sub-fund (investing in European bonds for example) to another (investing for example in Japanese equities) at reduced cost.
As conventional funds manage only one portfolio of assets, you need to sell your units or shares and invest in another fund if you want to reallocate your investment. As we have seen in our article on the costs associated with an investment in an investment fund, this exercise can be costly.
