Bermuda plays an important role in the global financial markets by providing a well-established, reputable jurisdiction for the incorporation of mutual funds, thus helping investors worldwide to meet their financial needs and goals.

A mutual fund is an investment vehicle that allows investors, on a collective basis, to participate in the securities markets. Mutual funds typically invest in a wide range of companies, thereby diversifying investor risk.

Mutual funds investors may be individuals, companies, trusts and other institutions.

Investors in a fund rely on the professional expertise of a fund manager, who would be responsible for making investment decisions for the fund with the aim of outperforming a set investment objective.

Investment objectives are typically expressed in the form of exceeding the return achieved on one or more of the leading stock indices such as the Dow Jones Industrial Average or the S & P 500 Index or a similar benchmark, (or a composite of a number of indices), over a given period.

The investment profile of the fund will determine the benchmark selected. Finding a mutual fund that is appropriate for the particular investment objective is critical.

Before investing in a mutual fund, it is necessary to review the fund's prospectus, which is often referred to as "the offering or information memorandum".

Under Bermuda law, a mutual fund is required to file its prospectus with the Registrar of Companies before they can offer shares to investors.

The Bermuda Monetary Authority must also consent to the issue of all shares before investments can be offered to the public.

Most mutual funds will engage the services of a law firm to prepare their prospectus to ensure that the document complies with the requirements of the Companies Act, 1981 and The Bermuda Monetary Authority (Collective Investment Scheme Classification) Regulations 1998.

Some of the key content requirements prescribed by law are that the prospectus specify the fund's investment objectives, investment restrictions, the principal decision makers, service providers and their experience, the associated investment risks, all charges and management fees as well as expenses specific to the fund.

Investors should be aware that past performance is not necessarily an indicator of future performance. Investment returns are not guaranteed and there is always the risk of losing the entire investment committed.

Many mutual funds "lock in" investors for an initial period, and early redemptions may be penalised.

Investors should also be aware of the tax implications applicable to their own personal situation before they invest, as different jurisdictions have specific tax laws regarding dividends and capital gains. Investors should seek tax or other professional advice before investing.

Rachael M. Lathan is a Paralegal in the Company Department at Appleby Spurling & Kempe. Copies of Ms Lathan's columns can be obtained on the Appleby Spurling & Kempe website at www.ask.bm.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.