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Protection boosted with cap on units

The new FSA regulations mean fund managers will be able to cap the number of units in funds giving them greater ability to move their holdings and provide more protection to investors.

The regulations, aimed at reforming the structure of unit trusts and Oeics, published last week offer up a substantial number of new changes to how funds operate, a key one of which is allowing a cap.

The FSA says this move will offer a degree of protection to investors as funds with a smaller number of units have more flexibility to change their holdings in the event of market turmoil.

Managers say the changes will be especially relevant in sectors such as emerging markets or small caps where having a smaller fund makes sense. They say that having open-ended funds can be an impediment to performance.

Unit trust and Oeic providers will now be able to set limits on the amount of money raised in the fund or on the period it is open for investment for the first time.

Schroders managing director UK retail Robin Stoakley says: “This is a valuable enhancement. There are certain sectors such as emerging markets or small company stocks where it makes sense to be able to cap the number of units.”

FSA spokesman David Cliffe says: “We view this move as a good thing both for fund managers and investors. It is seen as a way of giving some downside protection by capping the number of units.”

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