Understanding Investment Funds Guide into Investing Funds Under Armenian Law

When it comes to investing money investors often search for mechanisms which do not require much effort, are time and cost-effective, promise reward, as well as have certainty and predictability. For these very reasons, today investment funds are a popular choice among investors.
In recent years Armenia has been intensively developing this sector and carrying out immense legislative reforms to lay a fertile legal foundation to attract investors and investment fund managers.
In this client note, we will talk about the nature of investment funds in Armenia, their advantages and types, what Armenia offers to investment funds, as well as how to establish and operate one in Armenia.

What are investment funds?


An investment fund is a legal entity or a group of assets that are pooled based on fund management or similar contract(s) and is managed by a manager.


The main founding and operational purpose of an investment fund is the return of investments to investors through collective investments in securities and/or other assets under a unified investment policy. 


A person invests in an investment fund by buying units (shares) in the fund. Each of these units (shares) represents part of the investor’s ownership in the investment fund and its return. There are several forms of return investment - an increase of capital, dividends, and/or other financial income in line with the investments done by an investment fund.


More detailed information on being considered as an “investment fund” you can find in our latest Client Note.


Why investment funds?


Investment funds are a popular choice among investors because they provide:


  1. Professional Management - the management of investments is carried out by the manager itself. Often, managers are professionals with a grounded knowledge of securities markets and investments. The research on investee companies and their selection is carried out by the managers. The decisions on investments and divestments are also made by the Managers following the rules of the investment fund.  
  2. Certainty & Predictability – each investment fund manager operates an investment fund according to written and approved regulations (charter or fund rules). By this, investors have certainty and predictability in terms of investment fund management, investment decisions, and their return.
  3. Diversification of Investments – depending on the type and investment policy of the respective investment fund they typically have a diversification when it comes to assets and industries where the investment fund can invest in. Such diversification and certain thresholds allow investors to balance their investments and lower their risks.
  4. Affordability – when investing in an investment fund during the first closing the units (shares) of the investment fund are sold to investors with a nominal/fixed value rather than in the subsequent closings when in most cases investors can enter the fund by paying the market value of fund’s units (shares).
  5. Limitation of liability – the manager is labile towards investors for breach of fiduciary duties. The investors do not bear liability for the investment fund. At the same time, when the assets of an investment fund are not sufficient, the fund manager can only be personally labile for the investment fund in case of bad faith or improper performance of its duties as afund manager.
  6. Liquidity – depending on certain types of investment funds (time ranged/interim or open-ended) investors can redeem their units (shares) at respective time (or any time), for the current net asset value (NAV) and any other fee payable under the fund rules (charter) of the investment fund.


What types of investment funds are there?


Armenian legislation separates the types of investment funds based on their stock trading options, organizational type, issuance and redemption of units, and investment policy. 


The RA Law on “Investment Funds” (the “Law”) separates investment funds into the following types:


Based on trading


  • Non-public - an investment fund, according to whose charter (rules/management contract), its issued securities cannot be underwritten through a public offer, including an offer made solely towards an indefinite number of qualified investors.
  • Public - an investment fund, which is free to allocate its issued securities publicly (through public offer). 


Based on organizational type


  • Contractual - group of assets that are pooled based on contractual investment fund management contract (a.k.a. fund rules). This type of investment fund does not have a status of a legal entity.
  • Corporate - investment fund with the status of a legal entity, whose assets are being pooled only by underwriting shares or other stock securities.


Based on issuance and redemption of units 


  • Open-ended - an investment fund, which should redeem its issued units (shares) from its investors during any business day, based on the request of the latter.
  • Closed-ended - an investment fund, which does not have the obligation to redeem its issued units (shares) from its investors with some exceptions provided by Law.
  • Time ranged or interim - an investment fund, which does not continuously redeem its issued units (shares) but is obliged to redeem them from its investors during time ranges stipulated by its rules (charter), based on the request of the latter.


Based on investment policy


  • Specialized - real estate fund, a fund with additional risk (hedge fund), securitization fund, fund of funds, private equity fund, including a venture fund, as well as any other type of fund whose total assets or a part thereof, but not less than 30 percent are targeted to be invested in a certain type of assets provided by Law.
  • Standard - not specialized investment fund whose investment policy complies with the requirements of the Law (Chapter 6).
  • Unclassified - standard (specialized) fund whose investment policy does not comply with the requirements of the Law (Chapter 6).


The very own type of investment fund is identified based on all the above-mentioned categories and features. So, when establishing an investment fund the type of the fund should reflect its characteristics and its name should include one of all the above self-defining categories for others to be able to identify the investment fund. For example, an investment fund can be considered a “closed-ended unclassified non-public contractual investment fund”.


What are the main differences between public and non-public investment funds?


It’s fair to mention that the Law provides rather strict and detailed requirements for public investment funds considering the public interest and risks. Below are presented the main differences between public and non-public investment funds.


  1. The non-public investment fund cannot carry out the public offer and allocation of units (shares).
  2. The non-public investment fund cannot have more than 49 investors.
  3. The non-public investment fund is not subject to mandatory external audits.
  4. The manager of a non-public investment fund is not subject to a mandatory requirement of licensing. 


What are the main differences between contractual and corporate investment funds?


As already mentioned above, a contractual investment fund is a pool of assets that does not have the status of a legal entity. It’s founded purely on contractual bases. At the same time, the corporate investment fund has a status of a legal entity and should be either a stock joint company or in some cases - a partnership founded on trust. 


Based on this main legal feature the Armenian legislation implies all other regulatory differences that are mentioned below:





Legal entity status




Managed based on


Management contract (Fund Rules)


The ownership right of investors

Same as other shareholders of the respective legal entity according to generally applicable regulations

The ownership right of the contractual fund investor towards the contractual fund’s assets is limited to alienation, transfer based on succession, receiving dividends from the income derived from the management of the fund’s assets, as well as the right to receive its share from the contractual fund’s assets in case of suspension.


Manager acting

On the name and account of the corporate investment fund

On its name and on the account of the contractual investment fund’s assets, acting as the manager of the particular investment fund.


Assets of the investment fund

Registered in the name of the corporate investment fund

Registered in the name of the manager of the contractual investment fund, without the manager acquiring ownership rights toward those.


General meeting of shareholders



Not mandatory

Quotation of units (shares)


Only AMD

Can be in foreign currency

Applicable law


Armenian law

Any law

Dispute resolution



Any jurisdiction



Why choose Armenia?


Both for investors and investment fund managers it’s important to choose the right jurisdiction for their investment fund: a jurisdiction that meets their interests as investors or managers. So, what Armenia can offer to investors and investment fund managers?


Here are some factors that might be decisive when choosing Armenia as a jurisdiction to invest in, establish or operate an investment fund.


  1. Taxation - regardless of any type of investment fund, the proceeds realized from the portfolio/investee companies and received by the investment fund, as well as any income received by the Fund shall be taxed at the rate of 0.01% of the net asset value of the investment fund, which is considerably low in comparison to other jurisdictions.


  1. Relatively easy to establish - the investment fund (fund rules) is registered by the Central Bank of Armenia (the “CBA”) within 10 business days upon submission of the registration package. However, in practice, this term can be extended by CBA and take up to 1-2 months. For most of the investment funds, the submission of the founding package is carried out through a specially designed online platform and the total costs (service and state fees) for registration of the investment fund (excluding any legal service fees) equals around USD 2,000.


  1. Easy to operate – besides tax reports and mandatory reporting requirements under AML/TF regulations, the manager is only required to submit quarterly reports to the CBA in connection with investors, investment structure, and borrowed funds of the investment fund. Upon CBA’s request provided on the grounds established by Armenian legislation, the manager of an investment fund shall provide additional reports or information to CBA.


  1. Beneficial state policy – currently, the state policy is aimed to develop the investment market by carrying out legislative reforms and mainly implementing a modern approach towards investment funds.



NOTE: This material is for general information only and is not intended to provide legal advice.


Lilit Hakobyan Associate,


[email protected]