Operating an investment fund in Ontario
Investment funds in Ontario are subject to a number of regulatory requirements that affect their day-to-day operations. Those requirements cover areas such as:
- investment restrictions
- initial investments in mutual funds
- conflicts of interest
- fundamental changes
- custodianship of portfolio assets
- incentive fees
- sales and redemptions of securities of a mutual fund
- investment risk classification methodology
- securityholder records
The operational requirements applicable to an investment fund in Ontario may vary depending on the type of investment fund.
Investment funds that sell securities to the public
Mutual funds and non-redeemable investment funds
The requirements relating to the day-to-day operations of mutual funds and non-redeemable investment funds that offer securities to the public are set out in the following legislation and instruments:
- National Instrument 81-102 Investment Funds (NI-81-102), which includes matters such as investment restrictions, new mutual fund seed capital, conflicts of interest, fundamental changes, custodianship of portfolio assets, incentive fees, sales and redemptions, sales communications, and investment risk classification methodology for mutual funds
- National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), which includes, among other things, requirements relating to the calculation of a fund’s net asset value and management expense ratio
- National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), which includes certain requirements relating to the establishment and operation of investment fund independent review committees and their oversight over certain types of conflicts of interest involving investment funds and their investment fund manager
- National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103), which includes, among other things, requirements relating to certain conflict of interest matters involving investment funds
- Ontario’s Securities Act which includes, among other things, various provisions relating to certain conflict of interest matters involving investment funds
The application of these requirements may vary depending on the type of investment fund.
Specialized investment funds
While specialized investment funds that are sold to the public are subject to many of the same requirements described above, certain types of specialized investment funds may also be subject to separate requirements.
Scholarship plans
Scholarship plans are investment funds designed to facilitate savings for future education within a registered education savings plan.
While scholarship plans are not subject to NI 81-102, they are subject to National Instrument 41-101 General Prospectus Requirements, which includes, among other things, requirements relating to the custodianship of portfolio assets of scholarship plans.
Labour-sponsored investment funds
Labour-sponsored investment funds (LSIFs) are investment funds registered under the Community Small Business Investment Funds Act. These funds are designed to promote investments in smaller companies.
While LSIFs are subject to much of the same legislation as other investment funds, Part XIV of Regulation 1015 under Ontario’s Securities Act excludes LSIFs from many of the investment restrictions and other requirements in NI 81-102.
Investment funds that do not sell securities to the public
Investment funds that do not sell securities to the public are generally subject to fewer regulatory requirements than those that offer securities to the public. However, there are some requirements relating to day-to-day operations that are applicable to these types of funds, including the following legislation and instruments:
- NI 31-103, which includes, among other things, custody requirements and requirements relating to certain conflict of interest matters involving investment funds
- NI 81-106, which includes, among other things, requirements relating to the calculation of a management expense ratio and the preparation of financial statements
- Ontario’s Securities Act, which includes, among other things, provisions relating to certain conflict of interest matters involving investment funds
The application of these requirements may vary depending on the type of investment fund.