Development prospects of retail UIF market: Bank of Russia’s paper
The Bank of Russia has analysed and summed up the law enforcement practice in the market of retail unit investment funds (UIFs), international experience, and market participants’ initiatives and proposes discussing potential scenarios of advancement in this segment.
The first area of development can be expanding investment opportunities for retail UIFs. It is suggested to increase the range of unlisted securities that retail UIFs may invest in, although within a certain limit. In addition, the list of eligible assets may be enlarged to include digital financial assets (DFAs). To this end, it is necessary to establish a legal framework and a procedure for separate accounting and storing of DFAs. However, retail UIFs will only be allowed to invest in DFAs after a certain period of time.
Market participants proposed, among other things, promoting conditions for UIFs with increased financial leverage to be created in Russia. These are borrowings or derivatives that a UIF also uses to generate returns. Currently, the amount of financial leverage that a UIF for non-qualified investors is allowed to have may not exceed 20% of the UIF’s net asset value (although the threshold may be raised up to 40% if that is due to market factors). In the Bank of Russia’s opinion, higher leverage involves elevated risks and necessitates extra measures to protect investors.
Furthermore, the idea of establishing a fund of funds requires a comprehensive examination. Today, a management company in Russia is not entitled to purchase investment units of one UIF under its management into the portfolio of assets of another UIF under its management. However, there are master-feeder fund structures in the international practice. A master-feeder fund is a central fund (the master) that operates by pooling assets from other funds (feeder funds). The regulator proposes discussing possible use of these structures in Russia as well as the issues that they could help address in the collective investment market.
The consultation paper also considers proposals for accelerating transactions with investment units. Currently, the procedures for issuing, redeeming, and exchanging open-end UIFs’ investment units usually take from one to four business days after the submission of all necessary documents and processing of the payment. It is proposed to consider the possibility of reducing this period to complete these procedures on the same day.
For details about possible scenarios of retail UIFs’ development, refer to the consultation paper. The Bank of Russia welcomes feedback on the consultation paper through 1 September 2025.