How to buy mutual fund

[scaryfast]

Hello

I'd like to buy a quantity of Fidelity® SAI Inflation-Focused Fund (FIFGX), but my Interactive Investors account gives me no way to do this.

Additionally, none of their fund research tools even find this fund.

I feel like I'm missing something obvious, but can anyone kindly explain why this is?

[Newroad]

Hi Scaryfast.

This may not be the only reason: From here - https://fundresearch.fidelity.com/mutua ... /31634R406

"This fund is only available to clients enrolled in Fidelity® Wealth Services"

but it's probably a reason.

Regards, Newroad

[mc2fool]

UK brokers are only allowed to offer collective investments -- Packaged Retail and Insurance-based Investment Products (PRIIPs) -- if the investment has a Key Information Document (KID).

As virtually no (actually none that I've heard of) US only listed mutual fund publishes a KID there aren't any that can be traded in the UK.

https://www.fca.org.uk/firms/priips-disclosure-key-information-documents

P.S. This is an EU directive that we decided to keep.
P.P.S. You may get round this by not being classed as a "retail" investor, this usually involves having a "high" net worth.
P.P.P.S. Or by moving to the US ... which is where the site Newroad has quoted is.

[SalvorHardin]

It's almost certainly because the fund is American domiciled.

The UK's KIID rules require that funds produce these key information documents for investors. No KIID for the fund then UK investors can't invest in that fund. American domiciled funds don't produce KIIDs.

Also America's FATCA reporting requirements adds a whole new level of bureaucracy for institutions dealing with American domiciled funds held by non-American investors. They don't want the hassle.

[Lootman]

It's almost certainly because the fund is American domiciled.

The UK's KIID rules require that funds produce these key information documents for investors. No KIID for the fund then UK investors can't invest in that fund. American domiciled funds don't produce KIIDs.

This was not always the case so there must be UK investors who hold these funds. And in that case a UK broker would presumably allow you to sell the fund, even though they would never let you buy it?

I also wonder how this works for things like closed-ended funds and ETFs, which trade like stocks. Since UK brokers are happy to let you buy US stocks, would they 100% realise that the stock you are buying is also a fund? Their tickers look like stocks rather than like open-ended funds such as the one being asked about here. The former have tickers that are 1 to 4 characters whereas US OE funds typically have 5 character symbols.

[SalvorHardin]

It's almost certainly because the fund is American domiciled.

The UK's KIID rules require that funds produce these key information documents for investors. No KIID for the fund then UK investors can't invest in that fund. American domiciled funds don't produce KIIDs.

This was not always the case so there must be UK investors who hold these funds. And in that case a UK broker would presumably allow you to sell the fund, even though they would never let you buy it?

I also wonder how this works for things like closed-ended funds and ETFs, which trade like stocks. Since UK brokers are happy to let you buy US stocks, would they 100% realise that the stock you are buying is also a fund? Their tickers look like stocks rather than like open-ended funds such as the one being asked about here. The former have tickers that are 1 to 4 characters whereas US OE funds typically have 5 character symbols.

I suspect that it's quite likely that if the broker's system doesn't realise that the American share is a fund, not an operating company, they will let you buy it.

Good luck if you do buy such as it's quite possible that you then get caught by America's tax rules. Painful. Internally realised capital gains on American domiciled funds can be treated as taxable gains for the investor on a pass through basis. Ouch. Even worse if the fund is a limited liability partnership as investment returns are self-employed income which means IRS tax return time. Ouch. IMHO stick to non-American domiciled collectives.

Brokers will let you sell "funds" which don't have a KIID. But not buy them. I had this problem a few years ago with Macau Property Opportunities, which I held and which was now classed as a fund with no KIID even though it's a property company.

I've also had problems buying some American REITs, where the system sometimes, but not always, thinks that the REIT is a fund, so it's pot luck as to whether you can buy it on a particular day.

[scaryfast]

Some really helpful replies - thanks.

[Lootman]

Internally realised capital gains on American domiciled funds can be treated as taxable gains for the investor on a pass through basis. Ouch. Even worse if the fund is a limited liability partnership as investment returns are self-employed income which means IRS tax return time. Ouch.

Yes, US mutual funds distribute annually all realised capital gains. From memory of my Series 7 exam 30 years ago that is required by the 1933 Investment Act passed in the aftermath of the 1929 Wall Street crash. So, a disaster in a taxable account.

LLPs are even worse as each distribution is a mix of various different kinds of cashflow, each of which has to be accounted for in your tax return. You need a K-1 document to do that and that annoyingly arrives months late. A big part of the recent good performance of US private equity outfits like Blackstone, Carlyle Group and KKR is that they converted from LLPs to corporations, getting rid of the dreaded K-1 statements and thereby attracting a lot more small investors.

[SalvorHardin]

LLPs are even worse as each distribution is a mix of various different kinds of cashflow, each of which has to be accounted for in your tax return. You need a K-1 document to do that and that annoyingly arrives months late. A big part of the recent good performance of US private equity outfits like Blackstone, Carlyle Group and KKR is that they converted from LLPs to corporations, getting rid of the dreaded K-1 statements and thereby attracting a lot more small investors.

Oh yes. I'm one of those who bought some Carlyle Group and KKR shortly after they converted and thus lost the dreaded LLP status.

[csearle]

...

By the way, welcome to The Lemon Fool!

Chris