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Mutual Funds - 1998


II - Typology of Mutual Funds

Mutual funds can be classified in two types:

  • Open-ended funds have a variable number of units. These funds allow investors to purchase or redeem their units at any time. This type of funds fulfils the conditions imposed by the UCITS(1) Directive, which allow the free commercialization of open-ended funds in the European Union;
  • Closed-ended funds have a fixed number of units. If listed, investors can buy or sell their units in the Lisbon Stock Exchange.

Money-market funds and funds of funds are also regulated by the mutual funds regulation.

Money-market funds hold short-term financial instruments such as treasury bills, commercial paper and bank deposits.

Funds of funds, which can only invest in other funds units, is the most recent category of funds. They have been very well accepted by the Portuguese investors. By the end of December 1998, total funds of funds portfolio had PTE 820 bln., of which PTE 90 bln was invested in foreign funds.

Personal Equity Plans (PEP) and Retirement Plans (PRP) are a special type of mutual funds which give tax benefits to the unit-holders. Their investment policy is conditioned by law, being conservative in the case of PRP – minimum investment of 50% in public debt – and aggressive in the case of PEP - minimum investment of 50% in shares traded in a Portuguese exchange.

Although it is not a specific type of fund it also exists the so called "umbrella funds".

An Umbrella fund can aggregate two or more mutual funds ( with the exception of funds of funds) and is mainly characterized by the flexibility and advantages they offer in the redemption and purchase of units "inside the umbrella".

(1) Council Directive 85/611/EEC of 20 December, relating to Undertakings for Collective Investment in Transferable Securities