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Frequently Asked Questions About Mutual Funds

What is a mutual fund?

A Mutual Fund is a collective investment institution which permits many investors to put together their savings in a joint fund, in order to properly manage the portfolio.

This portfolio is administered by a management company, which takes care of the portfolio management, and by a custodian entity, which watches over the management company and guarantees the investors that their assets are safely kept and properly valued.

The investors are called unit holders, and their holdings are expressed in numbers of units. The net asset value of each unit is periodically published by the manager of the Fund.

All Funds managed and/or distributed by Merchbanc have a no dividend distribution policy.

What does a mutual fund invest in?

Mutual Funds are intended for investment in securities and different financial instruments and, in turn, can invest in financial assets in a short term money market. 

What is a Mutual Fund that does not distribute any dividends?

It is a Mutual Fund which accumulates all the returns of the portfolio, and reinvests them continuously. The objective of the Fund is to make the net asset value of each unit to grow. In this way, the investors’ money grows.

What is the investment policy of a Mutual Fund?

The Management Company manages the portfolio of the mutual fund in accordance with the criteria of the company’s management team, and always within the legal frame, trying to achieve the objectives established for each mutual fund.

For example, there are many mutual funds that only invest in fixed income securities; there are mutual funds whose portfolio is partly invested in fixed income securities and money market instruments and in shares, and other mutual funds that invest mainly in shares or stocks.

Before investing in a mutual fund the investors should analyze and choose the mutual fund which better fits their own objectives and personal characteristics with respect to risk, safety, return, etc. It is necessary to be totally informed about the objectives of the fund and the composition of its portfolio.

What is the liquidity of a mutual fund investment?

Merchbanc’s Mutual Funds permit the investors to invest or to redeem whenever they want and without limit to the amount that they want to invest or redeem. This provides a great liquidity for the investment, since the investors can liquidate at any time.

In the Spanish Mutual Funds, the legal regulation forces the management company to liquidate a selling order within three business days. Funds distributed by Merchbanc and subject to other legislations may have different settlement conditions.

How is the net asset value of a unit calculated?

In Merchbanc’s Spanish Mutual Funds, the portfolio of the Fund is valued daily, applying the criteria regulated by law, and by the bylaws of each Mutual Fund. Funds distributed by Merchbanc and subject to other legislations may have different valuation policies.

The acquisition and redemption of units are always priced in accordance with the net asset value of the day on which the money is invested or redeemed from the fund. This date is legally defined depending on the timing of the day that the money arrives to the fund, or the timing of the arrival of the order to the management company.

How do I know the net asset value of one unit, and what kind of information does the member of a mutual fund get from Merchbanc?

The net asset value of a unit may be known daily, just by checking the published data in the press, in Merchbanc’s website (www.merchbanc.es), or by getting in touch with Merchbanc by internet or by telephone.

All unit holders receive the following information from Merchbanc:

On the first investment in a fund, they receive a letter testifying the position in the Fund and the amount invested.

They receive a quarterly report detailing their trading during the quarter, the net asset value of their own investment and the number of units that they own at the end of that quarter.

Merchbanc also sends the unit holders all the necessary information for filing their income taxes, if they are subject to Spain’s taxation.

Which expenses have to be paid by the unit holders and which expenses are paid by the mutual fund?

Subscriptions and redemptions of units made by the investors may be subject to some expenses and/or withholding tax, depending on the mutual fund. These circumstances are regulated in the prospectus of the fund, which is published by the management company.

Besides these expenses and taxes, the management company, the custodian and the audit company charge fees for their role in the management of the Fund. The management company and the custodian expenses are regulated by law, which establishes the maximum percentages that can be charged.

What is the return for investing in a mutual fund?

The return that the investor gets in a mutual fund is not fixed, and depends on the dividend policy of each fund, and on the evolution of the net asset value of the unit/share. Therefore, one must compare the purchase price with the current net asset value in order to know the result at each period of time, taking into account any dividends (if the fund has paid them out).

The daily published net asset value takes into account all expenses, except the possible withholding tax, which depends on the legislation.

The return on this investment as any other financial investment that depends on the evolution of the markets, cannot be anticipated, and will depend primarily on the ability of the manager to foresee the evolution of the market valuation of the portfolio.

Is it more profitable to invest in a fixed income financial asset or in a mutual fund?

In general, investing in a mutual fund provides a greater flexibility for the investor to manage his income subject to taxation than any investment in a fixed income generating financial asset does.

The reason for this advantage is that you can hold your investment in a mutual fund for as long as you want, without generating income subject to income taxation (according to the current Spanish legislation).  However, most other investments will have payments from time to time that may force you to generate income which is subject to income taxes. Actually, you can even switch your investment from one mutual fund to another without generating any income that is subject to taxation.

Therefore, it is not enough to compare the returns generated by both investments; it is also necessary to know your investment horizon. Most of the time, the liquidity of the mutual fund is also higher than the liquidity in any other financial asset.

How can I withdraw the returns from an investment in a mutual fund with no dividend distribution policy?

The unit holder who wants to redeem his profits from the investment can do so by contacting Merchbanc for reimbursing the units.

The unit holder may redeem all or a part of the units that he holds. He can do it at any time that he considers adequate.

He may sell all or part of his holdings in the mutual funds.

How can I withdraw a fixed quantity from a mutual fund?

The unit holder may order periodic delivery of a certain amount.  In this case, the Manager will reimburse the units that are needed to reach the amount requested, up to the limit of current value of the investment.           

What is the minimum investment in a mutual fund?

Subscriptions to the mutual funds managed by Merchbanc are not subject to any minimum amount. Other Mutual Funds distributed by Merchbanc may have different limits for minimum investments.

What is the taxation rate for an investor in a mutual fund?

It depends on the legislation of each country of residence.

What is the corporation taxation rate for a legal entity? 

It depends on the legislation of each country of residence.