Similar to ETFs, but with some key differences:

• A wide range of mutual funds globally (assets = $17.1 trillion mutual funds vs $3.37 trillion in exchange-traded funds)
• Typically actively managed by a fund manager
• Traded over-the-counter (OTC) at a calculated price/net asset value (NAV)

How they work

• Open-ended: pools investor capital and can issue an unlimited number of shares.
• If the product provider (fund house) goes under, the underlying assets are held separately by a custodian on behalf of investors (similar to an ETF).
• All aspects of mutual fund trading are electronic and platform-based (OTC).
• Purchases and sales take place at a set time each day (usually 12:00 CET).
• As trading is conducted on a notional basis, fractional units can be bought and sold.
• The notional value of a transaction may not always equal the final traded value.
• Any difference flows back to the fund manager (typically less than one unit of currency).
• Once orders/pledges are submitted, they may not be amended or cancelled after the cut-off time.

Advantages

• Mutual funds complement your existing investments.
• There is a greater variety of instruments and sectors – including balanced funds and niche fund combinations.
• Mutual funds can be accessed without a financial advisor.
• No W-8BEN is required for US exposure.
• Includes trade instruments with US exposure that are domiciled outside the US.
  • Potential tax benefits (e.g. situs considerations) – consult a tax advisor.
• Includes well-known fund houses, e.g. Vanguard and BlackRock.
• The fund universe is expected to expand as negotiations with fund houses continue.

Terminology

• NAV (net asset value): assets minus liabilities; in mutual funds, this represents the value/price of a unit
• Subscription (buy): value denominated in the instrument’s currency
• Redemption (sell): by value or number of units
• Pledge (notional order value): in the denominated currency
• All subscriptions take place by specifying a notional value, not the number of units.  
• Example of subscription (buy):
  • You place a trade at 14:30 and the next valuation point is 12:00 the next day.
  • The trade is executed at 12:00 the next day, but confirmation is received only later that day or overnight.
  • This is because the fund manager needs to calculate the NAV based on the value of assets and the number of investors.
  • The trade is confirmed later that day and reflected on the platform the following day.