An umbrella fund is a collective investment scheme that exists as a single legal entity but has several distinct sub-funds which, in effect, are traded as individual investment funds.
[1] In UK law, the concept is defined in Section 756B of the Finance Act 2004[2] and is central to the structuring, taxation and regulation of small funds, especially the ones under the Appointed Representative regime.
[3] The umbrella fund structure makes it cheaper for investors to move from one sub-fund to another and saves the investment manager costs relating to regulatory duplication.
An umbrella fund can also be set up to provide retirement, death and other benefits to members of a participating employer.
They cut the cost by saving on maintenance and management fees and sometimes take advantage of reduced tax rates.