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The power of numbers is often referred to as investing, and investment funds (IF) are seen as a tool for accumulating and increasing capital.

This is why an increasing number of people are looking to purchase or open an investment fund or, as an option, register an umbrella fund that pools investment resources. The easiest and fastest way to start investment activities using a fund is to purchase it ready-made.

In this blog post, we will take a closer look at umbrella funds. 

Expectations from IFs

IFs are one of the few instruments that allow you to invest not in one asset, but in a whole portfolio of assets. Moreover, all over the world, it is investment funds that are considered one of the most profitable instruments. Their main objective is to pool the capital of many participants and invest it effectively. The assets of an investment fund belong to its investors as joint property.

The participation of each investor is confirmed by the ownership of the fund's securities - investment certificates or shares.

For effective investment and asset management, the fund has all the necessary components - a professional manager, analysts, solicitors, and enough resources not to invest all the funds in one or two companies. The portfolio, which is formed through joint investments, can be diversified, including shares of many companies from various sectors of the economy. The expectation is that in the event of a collapse of the stock market, profitability will remain at the expense of other components of the portfolio - deposits, bonds, shares of other issuers.

Investors often expect increased returns from IFs - tens and even hundreds of percent. However, few people understand the risks of such an investment. And this is certainly risky business. Under favorable conditions, investment funds are indeed capable of earning returns for investors that are much higher than that which can be obtained on bank deposits. During periods of active growth of the stock market, IFs can demonstrate a yield exceeding 100% per annum. However, in times of recession, they can receive losses from investment activities.

Under the umbrella

To define it in brief, an umbrella fund is an IF that is made up of several funds. The legal structure of an umbrella fund can be very complex. It resembles a tree with many branches that invest their assets in the main fund, which then makes decisions where to invest further.

Umbrella funds pros and cons

One of the main advantages of umbrella funds is that they can well reduce operating costs for individual funds and their investors. Also, due to their larger size, it can be easier to register a company for an umbrella fund. They often get better service and favorable conditions from institutions that facilitate financial transactions. This can help reduce the fees that turn into investor profits.

On the other hand, if you establish an umbrella fund, you need to understand that there are some risks connected with the umbrella funds. One of them is that all funds under the umbrella are linked by any investment decisions that the main fund makes. These decisions do not always fit the investment style of investors. Additionally, setting up an umbrella fund structure can be cumbersome, time-consuming, and quite costly.

IQ Decision UK experts note that although the profits from an umbrella fund go down to investors, there are costs and difficulties that an umbrella fund registration entails. In some cases, an alternative solution will be to open an investment fund of another structure. It could be more profitable for the management of investment assets and resources.

More information on the topic of the article can be obtained by signing up for an individual consultation with our experienced legal professionals. To contact us directly, please fill out the form below.