On 5 July 2012, the Ukrainian Parliament adopted the Law of Ukraine “On Mutual Funds” (the “Mutual Funds Law”) which will come into effect on 1 January 2014, except for certain provisions which became effective on 19 August 2012. The Mutual Funds Law amends the procedure for establishing and operating mutual investment funds (“mutual funds”).

The Mutual Funds Law, inter alia, introduces the following important changes:

(i)         sets out a number of limitations to become a participant of a mutual fund, e.g., an individual may purchase securities issued by a venture fund and a qualified fund if he or she invests amount equal to at least 1500 and 100 minimum monthly salaries respectively, which is determined by the budget legislation. The state and local communities are prohibited from  investing in mutual funds;

(ii)        extends the list of types of mutual funds which differ by classes of assets they may invest in, i.e., in addition to existing “diversified mutual funds” and “non-diversified mutual funds” it provides for “specialized mutual funds” and “qualified mutual funds”. The former is allowed to invest exclusively in asset classes prescribed by the Mutual Funds Law. A mutual fund is viewed as “qualified” if it: (a) invests only in one of the qualified asset classes prescribed by the Mutual Funds Law and in cash, and (b) does not have any requirements relating to the structure of the assets;

(iii)       although it provides that a mutual fund which is set up as a corporate fund is formed as a joint stock company, it also specifies that the Law of Ukraine “On Joint Stock Companies” (the “JSC Law”) will not apply to joint stock companies which were set up under the Mutual Funds Law. For this reason the Mutual Funds Law establishes a full set of corporate governance procedures applicable to corporate mutual funds. For the same reason it a draws a distinction between “shares” issued by a joint stock company and “shares of the corporate fund” which may be placed only privately and paid for only with funds;

(iv)      extends the list of limitations for mutual funds in terms of asset classes they are allowed to invest in; and

(v)       clarifies and extends the scope of assets a venture mutual fund may invest in (in particular, it is now expressly stated that its assets may comprise debt obligations under assignment of a claims agreement, i.e., claims under loan agreements, agreements for providing services etc.).

The Mutual Funds Law was adopted to replace the existing Law of Ukraine “On Mutual Funds (Corporate and Unit Institutes of Investments)” No. 2299-III dated 15 March 2001.  Such replacement of the law was expected by the market participants because of numerous inconsistencies with the JSC Law of the old law. The Mutual Funds Law clarifies how mutual funds legislation and the JSC Law correspond to each other, introduces new types of mutual funds and develops a legal framework relating to the asset classes mutual funds are allowed to invest in.

Additional notes