Investment Fund: Concept, Types, Structure, Legal Framework

Both experienced investors and beginners utilize the most popular tool—an investment fund—to preserve and increase their capital. Individuals and legal entities have the right to invest their resources in this financial organization, which then allocates them into various assets in financial markets. The main goal is to generate profit and subsequently distribute it among investors.

There are different types of investment funds, among which the most common are CIF (corporate investment fund) and UIF (unit investment fund). The first is established in the form of a joint-stock company to manage assets, while the second is managed by a management company. All activities of the funds are regulated by the Law of Ukraine “On Investment Funds and Investment Companies” which defines the structure, main principles of operation, management mechanisms, and legal aspects. This way, investors reduce risks and receive stable income.

CIF (Corporate Investment Fund)

A corporate investment fund is an institution that attracts investors’ funds as assets to generate profit. That is, a CIF is a legal entity that manages investors’ assets in the form of a closed joint-stock company. Relations between shareholders are clearly regulated. Participants purchase shares of the fund, thereby confirming their right to a share of the profit. Depending on the type of CIF, investors can either freely buy and sell the fund’s shares or invest funds for a certain period without the possibility of early exit.

A corporate investment fund invests funds in stocks, bonds, real estate, deposits. Profit is formed due to the increase in the value of assets or income from investments. The received funds can, by agreement of the parties, be paid as dividends to shareholders or reinvested.

The structure of a CIF includes several key elements. The highest governing body is the general meeting of shareholders, which includes all shareowners. They make strategic decisions, such as amending the charter, appointing and dismissing supervisory board members, and liquidating or reorganizing the fund. The fund administrator maintains the shareholder register and ensures compliance with regulatory standards. The supervisory board oversees the fund’s overall operations and monitors the activities of the asset management company (AMC). While CIFs may manage their assets independently through the board of directors, they more often delegate this responsibility to an AMC based on a relevant contract. The executive body is responsible for investing funds in various assets, buying and selling fund assets, and maintaining financial reporting.

The depository, as an independent company, safeguards the fund’s assets, maintains records, controls transactions, and verifies the legality of the AMC’s actions. Independent oversight is conducted by an auditing firm. The entire operation of a CIF is regulated by legislation, and the fund is obligated to comply with disclosure and reporting requirements to state regulators. The National Securities and Stock Market Commission (NSSMC) oversees the activities of funds, issuing licenses, ensuring legal compliance, and imposing sanctions for violations when necessary. A well-defined CIF structure with distributed functions ensures efficient management and control.

Who can invest in CIF?

Various categories of individuals have the right to make investments. This depends on the type of fund, its structure, and investment policy. Individuals, whether citizens of Ukraine or other countries, become shareholders after purchasing shares. The timing and conditions of redemption depend on the type of fund. Open-ended investment funds (CIFs) are usually available to a broader range of investors, while private or venture funds may have stricter participant requirements. Closed-end corporate investment funds may be accessible only to a limited group of individuals. Additionally, the fund’s charter may specify a minimum investment threshold.

Companies and corporations, as legal entities, allocate their free capital to the fund. Large financial institutions such as banks and insurance companies invest in closed-end CIFs, which are focused on long-term investments.

Taxation of CIFs

CIFs in Ukraine operate under a special tax regime that allows them to function efficiently and attract investors. A CIF is exempt from corporate income tax, provided that its activities comply with the law, meaning that all income from investment activities remains untaxed until it is distributed among shareholders.

Shareholder dividends are taxed at the owner’s level, so it is essential to monitor legislative changes. The current rules are as follows:

• For individuals (Ukrainian residents): Paid dividends are subject to personal income tax (PIT) at a rate of 9% and a military levy of 5%. Transactions involving securities: PIT – 18%, military levy – 5%.
• For legal entities: Dividend tax is paid according to general corporate taxation rules. Profit from the sale of shares is taxed at the standard corporate income tax rate of 18%.

Administrative services received by a CIF (such as asset management) may be subject to VAT at the general rate of 20%.

Authorized сapital of a Corporate Investment Fund

The authorized capital of a corporate investment fund is the amount of money or other assets contributed by shareholders during the establishment of the organization, which is used for investment activities. At the time of the fund’s registration, the minimum capital must not be less than 1,250 times the minimum wage. At least 30% must be paid before registration, and the full contribution must be made within the first year of the fund’s operation. The capital is formed from cash, property, or property rights. It can be increased through additional share issuance or decreased through share buybacks or a reduction in their nominal value.

Procedure for уstablishing a Corporate Investment Fund (CIF)

The process of establishing a CIF can take from 3 to 6 months, depending on the complexity of the structure and the speed of the registration procedure. The key stages include:

1. Decision to establish the fund – Determination of key parameters, including type, investment strategy, amount of authorized capital, and organizational structure.
2. Preparation of founding documents – Approval of the charter, decision on establishment, information about founders, authorized capital, and investment declaration.
3. Registration of the CIF – Submission of documents to the Unified State Register (USR), assignment of an identification code (EDRPOU), and opening of a bank account.
4. Issuance of shares – Registration of the share issuance with the National Securities and Stock Market Commission (NSSMC), inclusion in the state register of collective investment institutions (CII), and depositing shares in Ukraine’s depository system.
5. Obtaining an asset management license – License for the Asset Management Company (AMC).
6. Commencement of operations – Placement of assets and sale of CIF shares to investors.

Compliance with legal requirements ensures the fund’s transparency and attractiveness to investors.

To receive consultation from a leading financial law expert on all aspects of CIF registration in Ukraine, visit this page.

Advantages and disadvantages of a CIF

Among the disadvantages of a CIF, experts highlight the following aspects:

• • A complex and time-consuming registration process;
  • High costs for AMC services, auditors, depositaries, and fund administrators;
  • Limited liquidity for closed-end CIFs;
  • Risky AMC decisions that may lead to investor losses;

However, these drawbacks can be outweighed by the benefits. The advantages include tax exemption on profits, risk diversification, the ability to invest in a wide range of assets, a flexible structure (open, closed, interval), asset protection from founder debts, and transparent regulation.

Comparative table of requirements for specialized CII (collective investment institution)

MIF (Mutual Investment Fund)

A MIF is not a legal entity. It is formed from the funds of investors (unit holders). The assets of mutual investment funds are managed by an asset management company (AMC). Each investor receives a unit, which confirms their share in the fund. The value of the unit fluctuates depending on the success of the investments, which may include stocks, bonds, currencies, and real estate. The AMC manages the assets, while investors gain profits or incur losses.

The structure of a MIF is simpler than that of a corporate fund. The AMC handles all operations, and its activities are overseen by a depository, an auditor, and a regulatory authority. Investors do not participate directly in management; they purchase units and are entitled to receive profits from them.

The AMC is licensed to manage assets, makes investment decisions, and maintains asset records. The depository, as an independent financial institution, safeguards the fund’s assets and ensures their security. The administrator maintains the register of unit holders and oversees the issuance and redemption of units. An independent audit of the fund’s financial statements is conducted by an auditing firm. The National Commission on Securities and Stock Market regulates and supervises the activities of both the MIF and the AMC.

Characteristics and Features of a MIF

A mutual investment fund is managed by the AMC in accordance with an investment declaration, while the assets belong to the investors. The number of units held by an investor determines their share in the MIF’s assets.

Based on liquidity, MIFs are divided into three types:

• Open-ended – units can be bought or sold on any business day.
• Interval – units can only be sold during specific periods.
• Closed-ended – redemption occurs only after the fund’s term expires.

The investment strategy allows funds to be allocated to various assets such as stocks, bonds, real estate, venture projects, and mixed assets. The fund itself is not taxed; only investors pay taxes when receiving income.

Advantages and disadvantages of Mutual Investment Funds

A mutual investment fund is a convenient investment tool for those seeking passive income and professional asset management. Investment can start with small amounts, as the entry threshold is lower than that of a CIF (Corporate Investment Fund). Financial experts from the AMC manage investments, so unit holders do not need to analyze the market or make decisions independently. Funds are diversified, which helps mitigate risks. Additionally, PIFs are tax-exempt, and state oversight by the National Commission on Securities and Stock Market ensures transparency and clarity in fund operations.

However, there are some drawbacks. Investors must pay management fees to the AMC, as well as fees for the services of the depository, auditor, and fund administrator. The fund’s performance is highly dependent on the professionalism of the AMC, the economic environment, and financial stability. Investors have no influence over investment decisions. Closed-ended and interval MIFs have limited liquidity.

Investment funds differ in their legal status, ownership structure, management model, taxation scheme, and liquidity, depending on their type. Profits are distributed in the form of dividends, stock sales, or increases in unit value.

To receive expert consultation from a leading financial law specialist regarding all the details and nuances of MIF registration in Ukraine, visit this page.