Changes To “Fund-On-Fund” And Other Rules For Canadian Mutual Funds

The Canadian securities regulators have adopted new rules that significantly broaden the ability of publicly offered mutual funds to invest in other mutual funds. The amendments to National Instrument 81-102 will permit a mutual fund to actively invest an unlimited amount in traditional Canadian mutual funds, if duplication of management fees, incentive fees, sales charges and redemption fees is eliminated. In a major change from the original proposals, any traditional mutual fund may be an underlying fund if it does not itself invest more than 10% of its assets in other mutual funds (other than money market funds or index participation units (IPUs) or RSP clone funds). Traditional mutual funds will now also be able to invest in IPUs of Canadian or U.S. funds, without any limits.