Open‑Ended Fund Company Hong Kong: Open‑End Funds and OFCs Explained
- Anna Lau
- Jul 28, 2022
- 3 min read
Updated: 5 days ago
What Is an Open‑End Fund (OEF)?
Open‑end fund (“OEF”) is a type of mutual fund that invests in a pool of assets, including stocks, bonds, and money market instruments. Because there is no limit to the amount of shares the fund can issue, it is a flexible scheme that allows for continual input and withdrawals from pool participants.
The price of an OEF is reflected by its net asset value (“NAV”), which is determined by the number of shares purchased and sold each day. Unlike close‑end funds, NAV is only priced once a day, meaning investors can only see gains or losses at the end of the trading day.
OEFs are not traded on the open market and can only be sold back to the issuing company.
It is a legal requirement that OFC's assets should be managed by an SFC-authorized investment manager and safekept by a qualified custodian under Part IVA of the SFO.
Setting Up an Open‑Ended Fund Company Hong Kong
Open‑ended fund company (“OFC”) is an OEF in a corporate structure. Unlike companies regulated under the Companies Ordinance (Cap. 622), OFCs do not engage in general commercial or industrial undertakings.
The legal and regulatory framework governing OFCs is set out in:
Securities and Futures Ordinance (Cap. 571)
Securities and Futures (Open‑ended Fund Companies) Rules
Code on Open‑ended Fund Companies (“OFC Code”)
OFCs require approval by the Securities and Futures Commission (“SFC”) and registration with the Companies Registry.
A board of directors approved by the SFC has statutory duties to monitor the OFC. The instrument of incorporation must state that the object of the OFC is to operate as a collective investment scheme.
An independent auditor must be appointed to review financial reports annually.
If the fund requires active management, investors should expect higher fees and expenditures.
Pros and Cons of Open‑Ended Fund Companies
OFCs offer risk diversification through pooled investment. From an investor’s perspective, OFCs may appear more secure due to SFC supervision, independent custodianship, and regulated management.
OFCs are accessible to investors due to low or no minimum capital requirements, and shareholders are not liable for the debts of the OFC.
However, as a trade‑off for stability, OFCs may offer lower yields. Active management can increase costs, and statutory compliance under the OFC Code, OFC Rules, and SFO may reduce flexibility.
Tax Considerations
From a tax perspective, profits from transactions in most asset classes may be exempt from profits tax under the Unified Funds Exemption (UFE).
However, income from assets not excluded under Schedule 16C of the IRO, particularly general business enterprises for commercial or industrial purposes, may not qualify.
It is therefore crucial for fund managers to engage legal and tax advisors before incorporating an OFC.
How Ravenscroft & Schmierer Can Help?
The open‑ended fund company Hong Kong regime involves complex regulatory, structuring, and tax considerations. Ravenscroft & Schmierer advises fund managers and investors on OFC establishment, SFC approval, compliance under the SFO, and ongoing governance matters.
If you are considering setting up or investing in an OFC, contact us to discuss your circumstances and available options.
FAQ: Open‑Ended Fund Companies in Hong Kong
What is an open‑ended fund?
An open‑ended fund is a collective investment scheme that allows continuous subscription and redemption of shares.
What is an OFC?
An OFC is an open‑ended fund structured as a corporate entity under Hong Kong law.
Who regulates OFCs in Hong Kong?
OFCs are regulated by the Securities and Futures Commission and registered with the Companies Registry.
Are OFC assets protected?
Yes. Assets must be managed by an SFC‑authorised manager and held by a qualified custodian.
How can Ravenscroft & Schmierer assist with OFC setup?
Ravenscroft & Schmierer advises on SFC approval, incorporation, and regulatory compliance for OFCs.
Does Ravenscroft & Schmierer advise on fund structuring and tax?
Yes. We advise on OFC structuring, Unified Funds Exemption eligibility, and tax considerations.
Can Ravenscroft & Schmierer provide ongoing compliance support?
Yes. We provide ongoing regulatory and governance support for OFCs.
Disclaimer: Whilst every effort has been made to ensure the accuracy of this article it is general in nature and does not constitute legal advice of any kind. You should seek your own personal legal advice before taking legal action. We accept no liability whatsoever for loss arising out of the use or misuse of this article.
For specific advice about your situation, please contact:
Litigation Partner
+852 2388 3899
Comments