Unit trusts given freedom to invest in more countries

UNIT trusts will soon be free to invest in any country they choose as long as they are convinced the markets are properly regulated.

The Securities and Investments Board, the chief City regulator, yesterday announced new rules to deregulate the industry that come into force on 1 November. According to the guidelines, managers must satisfy themselves that the markets they intend to invest in are 'fair, clean, liquid and orderly'.

Unit trusts are currently restricted to investment in securities listed on an exchange recognised by the SIB. The regulator names exchanges in 17 countries but managers have found it difficult to get new countries recognised with any speed. Some fund managers have launched funds offshore because they have not had enough investment freedom in the UK.

Foreign & Colonial recently launched a global emerging markets fund offshore under European regulations. Craig Walton, F&C marketing director, said: 'It was for that very reason. There were not enough markets on the SIB list. The manager wanted a freer hand.'

Mike Ryder-Richardson, marketing director of Save & Prosper, said it had lobbied for the inclusion of Mexico. 'It took for ever.'

But Clive Boothman, managing director of Schroder Unit Trusts, said there were plenty of other reasons for taking a unit trust operation offshore. Singer & Friedlander set up its operation in the tax-free zone of Dublin, where the funds are restricted by a list kept by the central bank of Ireland.

The Association of Unit Trusts and Investment Funds (Autif) will act as an information centre listing which countries are covered by which funds.

The new rules will also give managers the freedom to introduce exit charges. Only personal equity plans at the moment are allowed to impose charges when investors cash in their units.

One manager, Fidelity, started imposing exit charges on its PEPs but dropped this in July.

Existing unit trust investors will not have to pay an exit charge. Philip Warland, director-general of Autif, said there could be some problems coping with regular savings plans if a trust changed from up-front charges to exit charges.

The regulations also allow managers to dispense with the phrases 'bid' and 'offer'. They will probably move to referring to 'buying' and 'selling' prices.

Cancellation prices will have to be available on request.