How easy is it to start an index fund?
August 21st, 2010
Do index funds purchase shares from the market every-time they receive a new subscription (investor capital)? How hard is it to start an index fund/ what is the process? Would an index fund need an administrator and a custodian?
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Tags: custodian, index fund, index funds, investor capital, purchase shares
Its not easy to set up an index fund. First step would be to register with the SEC as an investment company. As an investment company you would be required to meet specific reporting and information guidelines mandated by the SEC.
http://www.sec.gov/answers/mfinvco.htm
http://www.law.uc.edu/CCL/InvCoAct/sec8.html
You would need to hire a custodian to custody the shares, you would need an administrator to strike and report the NAV and POP for shareholder reporting. You would need to either hire a trader or build a relationship with a trader to execute the trades for you in the market. While you might not have to buy new shares every time you bring on a new subscriber you would need to have enough capital invested to accurately replicate the performance, as each investor represents an additional % interest in the profits/loses generated by the fund.
You would need to be a registed representative and pass the appropriate licensing exams to begin marketing and trading the portfolio. These are just the basic steps they don’t include the legal efforts that must be maintained for SEC compliance, or the need to hirer an outside auditing firm to review and generate financial statements.