Key Considerations When Investing in Investment Funds
Key Considerations When Investing in Investment Funds
There are two key factors to consider when selecting an investment fund. One of these is price volatility, which refers to the extent to which the return generated during the holding period may differ from alternative returns (such as deposits or repos).
As a general rule, funds with a lower risk level have a lower likelihood of underperforming or outperforming alternative investment instruments during the holding period, whereas this likelihood is higher for funds with a higher risk level.
When choosing an investment fund, investors should carefully assess what constitutes a risk-free alternative return for them, the investment horizon they are considering, and how prepared they are for potential deviations in returns at the end of the investment period. Where possible, seeking professional advice is recommended.
In addition, to achieve the expected returns from investment funds, a longer investment horizon is generally required compared to products such as deposits that are typically considered on a monthly basis. An investment period of at least six months to one year is generally advisable.
Where Can I Purchase Investment Funds?
The purchase and sale of fund units can be carried out through the fund founder as well as through fund distribution institutions that are members of TEFAS. All banks and brokerage firms across Turkey are obliged to offer all funds to their clients. A list of member institutions is available at www.tefas.gov.tr.
Notice Periods and Trading Hours
Investment funds are categorized as with notice and without notice.
For funds without notice, buy and sell orders placed within the specified trading hours during the day are executed on the same day at that day’s price. Money market funds (liquid funds) typically operate under this structure.
For funds with notice, buy and sell orders placed within the specified trading hours are executed at the price determined in the next applicable price calculation, in accordance with the fund’s prospectus, and reflected in the investor’s account on a later date (e.g., T+1, T+2, or T+3).
Trading hours vary depending on the fund’s prospectus, type, and distribution channels. To ensure that orders for funds with daily price calculations are included in the same day’s pricing, orders must be placed before the cut-off times communicated by the distribution channel. Orders submitted after these times are deemed valid for the next business day.
Accrual in Funds with Notice
At the time a purchase order is placed, the corresponding amount for the requested fund units is generally collected by the fund founder. Purchase orders may be submitted either in terms of number of units or amount. If the order is placed as an amount, the specified amount is collected, and the corresponding number of units is calculated after the fund price is announced.
What Is TEFAS?
TEFAS is an electronic platform that enables the sale and redemption of investment fund units through distribution institutions listed on the platform by fund founders, with settlement and custody processes fully automated and integrated with the Takasbank–MKK system.
Taxation of Investment Funds
Pursuant to Provisional Article 67 of the Income Tax Law, the redemption of units of securities investment funds established under the Capital Markets Law is subject to withholding tax at rates ranging from 0% to 17.50%.
In accordance with paragraph (8) of Provisional Article 67 of the Income Tax Law, income obtained from the redemption of fund units is not required to be declared in an annual income tax return. Even if an annual return is submitted due to other income, such income is not included in the declaration.