Introduction
- The 1994 Joint Investment Trust Law established guidelines for the Israeli mutual fund industry. Under the law, mutual funds must be established by an agreement signed between a corporation acting as the trustee, in whom ownership of the fund's assets are vested, and a corporation acting as the fund's manager, carrying out transactions in the fund’s assets under a power of attorney granted to it by the trustee. The fund itself is not a legal entity, but a portfolio of securities, cash and various other undertakings. The fund issues units to the public, with each unit representing an equal relative portion of the funds’ assets.
- Legally, Israeli mutual funds can be either open-ended or closed-ended. Open-end funds are not traded on the stock exchange, and can be redeemed on any business day, following a sale order given to the fund manager. The price will reflect the proportional value of the unit in the net value of the fund's assets, with deductions for the cost of the sale of the corresponding assets. Closed-end mutual funds are listed for trade on the stock exchange, and their price is determined by market activity. Fund Managers stipulate redemptions dates for units of the fund, at least three months apart, when units may be redeemed according to their proportion of the net value of the fund’s assets. There are no close-end funds in Israel today.
- There are several unique aspects of the Israeli mutual funds industry. For instance, there are two types of “funds of funds” that are available in Israel. Foreign funds of funds hold only foreign mutual funds, encouraging the cooperation of Israeli fund managers with their foreign counterparts, and the exposure of Israeli consumers to foreign mutual funds. Israeli funds of funds can contain only mutual funds managed by the same fund manager.
- Certain regulations enforced by the ISA help investors to understand more about the portfolios of Israeli mutual funds. These include:
Exposure Profile - In their name, mutual funds must include a two digit indicator consisting of a number and a letter, which shows their exposure to equity and foreign currency. The exposure to equity is rated on a scale of zero to six, (from 0% up to unlimited exposure in absolute value) while the exposure to foreign currency is rated on a scale from 0 to F(from 0% up to unlimited exposure in absolute value), thereby notifying investors of the fund’s broad investment strategy. (Following is a table showing the Exposure profile)
| Max. Exposure | Equity | Currency |
| 0% | 0 | 0 |
| 10% | 1 | A |
| 30% | 2 | B |
| 50% | 3 | C |
| 120% | 4 | D |
| 200% | 5 | E |
| 200%+ | 6 | F |
In addition to information about the fund's exposure to shares and foreign currency, names of mutual funds in Israel indicate their level of investment in high risk bonds (rated BBB and below or non-rated). A fund manager who expects that a fund’s investment exposure to such bonds will be higher than its exposure to shares must add an exclamation mark (!) to the fund's name.
Information reported to the public - Fund managers must publish data about each mutual fund they offer, to allow potential investors to compare mutual funds from different managers. This information is reported on a monthly basis.
Fund names - Mutual fund names must accurately portray the investment strategy of the fund, or be completely neutral. For example, a fund using the word “Bonds” in its name must have a minimum exposure of 75% to bonds at any time. This further clarifies the makeup of the mutual fund to investors and regulators.
Changes in investment policy - Material changes to mutual funds are limited to once a year, barring unusual circumstances, to minimize price volatility and to maximize portfolio integrity.
