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HMRC internal manual

Offshore Funds Manual

Meaning of mutual fund: conditions: condition ’C’ - Section 356(6) TIOPA 2010

Condition C requires that a ‘reasonable investor’ (see OFM05500) would, as participant in the arrangements, expect to be able to realise all or part of an investment in the arrangements on a basis calculated entirely or almost entirely by reference to either

  • the net asset value (NAV) of the scheme property, or
  • an index of any description.

To ‘expect’, in this context, does not necessarily mean that an enforceable right exists, but it does mean that an investor could reasonably expect to rely on realisation as described.

Realisation of an investment has a wide meaning, and so may be by redemption, sale to a third party, or by distribution of assets on the termination of a fund for example. So, if a fund has a limited life, it would not matter that an investor may not be able to sell his or her shares or units on the open market for a sum representing NAV or close to NAV as there would be an expectation that the investment could be realised at or close to NAV when the fund terminated.

See OFM05500 for guidance on the meaning of a ‘reasonable investor’, and OFM05600 regarding realising an investment on a basis calculated entirely, or almost entirely, by reference to NAV or an index of any description.

The exceptions to the meaning of the term ‘mutual fund’ relate directly to Condition C, and so Condition C must be read in conjunction with section S357 TIOPA 2010 (which provides the exceptions) for the purposes of determining whether or not arrangements come within the meaning of a mutual fund, and hence an offshore fund- see OFM06000 onwards.