An investment fund is a vehicle to channel different people’s savings for the purchase of shares and debt issued in an official and regulated market.

This vehicle is virtually identical to a SICAV. The distinctive feature is that the share of diversity of people involved in is greater. It is defined as a collective vehicle because of that participation of people.

Investment funds are required to maintain a portion of the capital raised in cash in order to facilitate any partial or full withdrawals of their investors.

This investment vehicle is governed by the Regulations proposed by the promoting entity. This regulation refers to the mode of investment and divestment, the manager’s remuneration, the type of assets it invests in and the type of financial markets, among others.

Investing mutual fund allows you to enjoy several advantages:

1. Managing the savings of an individual through investment funds allows that person to operate as if he/she had his own SICAV. The reason is:

i)   Both types of entities have identical taxation (1% on profits);

ii) Qualified investment funds are those classified as UCIT 4. Unit holders in a qualified investment fund are not taxed when they disinvest provided the amount received is used to invest in another qualified investment fund. So, the saver can modify the investment profile as if he/she had a SICAV;

2. Regarding the professionalism of management, it should be noted that most savers do not have the means or time to make adequate decisions in the face of market developments. The investment through funds offers a professional management with the capacity and resources to face the investment decisions.

There is a mistaken belief that investing in shares is clearer than investing through investment funds. However, this perception is far from reality. Choosing between one or more shares is not even close to the saver’s ideal investment. The reason is the lack of risk perception: an individual does not have the quality and amount of information available to professional managers.

In addition, management allows the taking of protective decisions with derivatives or hedges. These mechanisms are beyond the reach of individuals both because of its specialization and the opportunity cost.

The remuneration of the fund manager is determined in the regulations of each fund and it is under the supervision and approval of the regulatory body, in this case, the CNMV. Sometimes managers ask the regulator for an improvement in their remuneration conditions, especially when the fund has a high success rate.

3. Thirdly, the key of investment funds is the possibility of diversifying investment. An investment fund can invest capital in different assets, regardless the country or sector in which it is invested.

In this way, an investment is more secure since the diversification has as a direct consequence: the risk minimization.

4.  Lastly, the most attractive aspect of funds is their tax advantages.

Investment funds are exempt from taxation until their repayment. In addition, funds are transferable in an unlimited way, and the investment can be transferred from one fund to another without taxation provided that the capital is not available to the investor. Taxes will only be paid when the investment is fully or partially refunded, giving rise to the corresponding effects on Personal Income Tax.

Each investor has his own specific objectives. Given the characteristics of the investment fund and the diversification of investments, it is very feasible to achieve the objectives set in each case.

Malta has a flexible financial regulation and a really interesting tax regime for investors. Thus, it has become one of the most attractive Mediterranean financial centres. Malta is a member of the European Union since 2004 and introduced the Euro as the official currency on January 1, 2008. Due to its excellent environment and lifestyle, this country encourages companies and professionals to settle in it and, therefore, to take advantage of its tax benefits.

Malta's investment fund industry has been restructured and internationalized in recent years, becoming the most important industrial sector. This island offers a very effective tax regime, which avoids double taxation on taxable business profits distributed as dividends.

Malta's tax system is developed in compliance with the EU’s non-discrimination principles. That is to say, Malta gives a similar tax treatment to (i) tax residents, regardless their nationality, (ii) permanent establishments and (iii) companies operating in a EU State, regardless the residency of their shareholders.

Malta offers investors an advantageous environment for the development of business activities, either for the establishment of a sole-member company, a partnership, a limited liability company, a branch of a foreign company, a trust company, a cooperative or an investment company with variable share capital (hereinafter SICAV).

SICAVs are established in Malta as investment companies whose purpose is to raise funds and manage and invest these funds in securities or other financial instruments. They have become the island’s financial vehicle par excellence. It is governed by the Maltese Companies Act 1995; every company registered in Malta must establish its registered office on the island. Documentation regarding the Company's articles of incorporation and by-laws must be provided.

In the event that an investor with a fund in another EU country wants to transfer it to Malta, the investor must reregistrer and change the nationality of the fund, and therefore submitting it to the Maltese legal system. 

Each Maltese investment fund has an ISIN Code, "International Securities Identification Numbering System", an identification number made up of 12 alphanumeric characters. This number identifies a transferable security internationally in a concrete and unique manner.  

Providing the ISIN to the Bank speeds up and makes the procedures easier.

The main advantages of the establishment of a SICAV in Malta include the existence of a competitive fiscal regulation that allows innovation. The tax system is attractive and has signed Conventions with more than 70 countries to avoid double taxation and tax evasion.

Funds can be created in a short period of time, speeding up the deadlines for market launch. Likewise, the incorporation costs of these companies are lower than in other European countries, sometimes up to 50% lower.

All in all, a framework of transparency, efficiency and integrity of the investments is established, providing security to the investors. In addition, SICAVs may be structured through sub-funds, allowing the issuance of their own compartments. Fully independent and separate compartments can be created.

Furthermore, it should be pointed out that the establishment of the funds will be authorized by the MFSA, the Malta Financial Services Authority. It is the entity in charge of regulating financial services in Malta through the supervision of financial institutions, credits and investments. This body reviews and authorizes the projects, which, if approved, are governed by an extremely competitive tax regime since they are tax exempted. 

SIF stands for “Specialized Investment Funds”. In the specific case of Luxembourg, it may be established as an investment fund, as a variable capital investment company (a SICAV by its Spanish abbreviation) or as a fixed capital investment company, a SICAF.

With regard to the investments, they are limited to qualified investors that is, to any Institutional Investor, professional or any other investor who can proof and confirm in writing his position as a well-informed investor and invests at least €125,000 or provides with a certificate issued by a credit institution proving his capacity as an expert investor and his knowledge and expertise to carry out proper investments in a SIF.

This certificate may be issued by (i) a credit institution within the definition provided by Directive 2006/48/EC, (ii) an investment firm based on Directive 2004/39/EC or (iii) a management company within the meaning of Directive 2001/107 /EC. Nevertheless, it must be highlighted that individuals such as investments advisors or managers do not need to prove their capacity as ‘well-informed’ investors. 

Minimum capitalization, including capital and share premium, must be, at least, €1,250,000. This amount can be achieved within the twelve-month period after the authorization. Therefore, it is less than in the case of Spain, where capital should amount €2,400,000. In addition, unlike the Spanish SICAV, which requires a minimum of 100 investors, these funds established in Luxembourg can be formed by a single investor.

The "Commission de Surveillance du Secteur Financier” is a public institution that supervises, monitors and controls whether the requirements of Luxembourg law relating to capital are met: qualification of investors and documentation for the establishment, among other requirements. It is also the institution responsible for authorizing the establishment of the SIF before it starts operating. 

The SIF- SICAV may be structured by separate compartments, also called sub-funds. Each compartment is formed by an asset and a liability. Since they are considered separate entities, investment policies may also be different and each investor may decide to participate in one or more compartments, depending on his interests. Following that logic of this separation and unless otherwise established in the incorporation by-laws, investors have rights and obligations with regard to the specific fund they have invested in. Therefore, they may be liable for expenses and/or may receive benefits from the specific compartment in which they take part.

Consequently, each compartment will be liquidated separately. In order to fully liquidate the company, each and every sub-fund must be liquidated. The competent Courts, based on the SIF’s registered office, may dictate the dissolution of those compartments without permission to be constituted. 

Cross-investment is allowed between compartments. That is to say, a compartment may acquire units in another compartment of the same SIF. However, the purchaser of those shares may not be allowed to invest in the investor compartment subsequently.

Another basic requirement for the establishment of a SIF-SICAV is the appointment of a depositary bank established in Luxembourg in order not only to safeguard and monitor the assets but also to supervise the activity of the management company.

The board of directors shall be established in Luxembourg and may delegate certain faculties to third parties, under supervision. Furthermore, it should be pointed out that accounting, NAV calculation, the share register, subscriptions and redemptions, notifications to investors and the elaboration of financial statements must take place in Luxembourg.

Administrators shall appoint a management company that performs the tasks of representation, monitoring, counseling, accounting and processing of subscriptions and redemptions of shares, plus annual reporting. Furthermore, a custodian entity that may supervise the management company mainly must also be designated.

Regarding the tax regime applicable to Luxembourg’s SIF-SICAV, its taxation is also lower. These structures are subject to an annual subscription tax of 0.01% of their net asset value. 

To be clear, the attractiveness of these companies lies in their flexibility of investment, in the reduction of the establishment requirements (such as the minimum initial capital to be provided and the possibility of becoming a single investor) and, of course, in the applicable low percentage taxation.