What are the advantages of umbrella funds?
Umbrella funds offer several advantages over traditional investment funds. The most immediate one is that umbrella funds can reduce trading and operating costs because the fund benefits from economies of scale. Similarly, the funds can also benefit from higher levels of service and better terms on transactions.
An umbrella fund can offer flexibility and a greater range of investment products, which can help investors stay within the same mutual fund rather than buying and selling and paying the associated transaction costs.
Additionally, umbrella funds make it easier for investment managers and advisors to manage the funds, follow the necessary rules, and ensure they're following their fiduciary duties.
Finally, umbrella funds also offer tax advantages since they're often taxed at a lower rate than stand-alone funds. Investors can sell stocks and move money around without incurring capital gains tax because the sub-funds are contained within the larger umbrella fund.
Some of the disadvantages of an umbrella fund include the complexity of setting it up and the fund manager's control over the master fund.