Investment Funds

Legal or Professional Advice. As a regulator, the ASC cannot provide legal or other professional advice. If you are uncertain how to comply with the rules relating to investment funds or the requirement to register, please seek legal or other professional advice. 

What is an investment fund?

Investment funds allow investors to pool their money with other investors in a professionally-managed fund. Conventional mutual funds and ETFs (or exchange-traded funds) are the two most common kinds of investment funds, though there are also other types of investment funds (discussed below). Investment funds:

  • Allow investors to gain exposure to a broader range of investments than investing directly.
  • Relieve investors of the need to pick and choose individual investments.
  • May reduce investment risk by allowing an investor to hold a more diversified portfolio than if they were investing directly.

In exchange for these benefits, investors in an investment fund directly or indirectly pay for the cost to manage the fund. Fees associated with different types of investment funds vary but they can be significant.

Generally, investment funds are professionally managed on the basis of a stated investment policy. The investment fund manager has the discretion to buy and sell any investments as long as they fit within the constraints of the investment policy. Some investment funds, such as those designed to track indices, are known as “passively-managed” funds, which means that the investments in the fund are chosen according to a set formula (often to track a published index). Other investment funds are “actively-managed,” meaning that the fund manager is actively involved in decisions about what the fund buys and sells, and the timing of those transactions.

Under securities laws, investment funds are classified as either mutual funds or non-redeemable investment funds.

Mutual funds
Non-redeemable investment funds

Investment funds may be publicly or privately offered for sale to investors. Some investment funds sell directly to investors using one or more prospectus exemptions, typically the accredited investor or offering memorandum prospectus exemptions. See here for a description of these exemption. These funds are often called private funds or prospectus-exempt funds. Investors may receive limited ongoing information about these investment funds. However, most investment funds are sold using a prospectus that is required to be filed with and reviewed by securities regulators. These investment funds can be offered to the general public and the investment fund is required to provide certain ongoing information to investors. These funds are often referred to as public funds.

Additional information about the types of investment funds can be found in section 1.2 of the Companion Policy to National Instrument 81-106 Investment Fund Continuous Disclosure.