A mutual fund is a financial instrument that enables investors to collectively invest in securities through a jointly managed investment portfolio for all investors in the fund, managed by a mutual fund management company ("Fund Manager").

The fund operates according to a "fund agreement" – an agreement signed between the Fund Manager and the trustee (who represents the unit holders of the fund and holds its assets), detailing the terms of their contract for establishing and managing the fund. The fund agreement is published to the public upon the fund’s establishment.

The Fund Manager makes decisions regarding the management of the fund’s investments, aiming to maximize profits through investments in the capital market: buying and selling securities and utilizing financial instruments on behalf of the fund in accordance with its investment policy.

The exposure profile of a mutual fund consists of two characters that together represent the maximum exposure level to foreign currency (0-F) and the maximum exposure level to equities (0-6). This combination forms the fund’s exposure profile and is an integral part of the fund’s features and is also embedded in the fund’s name. 

Mutual funds are subject to strict oversight by the Israel Securities Authority (ISA) and the fund’s trustee, who is independent of the managing company. The funds of unit holders are held in a trust account supervised by the trustee. The trustee has two main roles: safeguarding the fund’s assets and the rights derived from those assets, and overseeing the fund manager. The fund’s assets are assigned to the trustee for the benefit of the unit holders, with the trustee authorizing the fund manager to operate the fund’s account and perform actions on behalf of the fund.

By law, mutual funds are required to publish, among other things, their prices on an ongoing basis, as well as a prospectus and annual financial statements.

The performance of mutual funds is published daily by the Tel Aviv Stock Exchange and economic websites. Performance can be reviewed for various periods, such as one year, two years, five years, and longer periods.

In most mutual funds, there is no restriction on the minimum investment amount. Therefore, an investor can gain exposure to a variety of activities and assets in the capital market even with a small amount.

(!) – In a Class 3 Fund, for the purpose of the Joint Investments in Trust (Distribution Commissions) Regulations, 5766-2006 ­­– An exclamation mark in the fund’s name indicates that under its investment policy, a credit risk may be created from its exposure to Non-Investment Grade Bonds (as defined below); or to bonds of a Company with No Link to Israel (unless such bonds are rated AAil and above or equivalent) (as defined below); or from derivatives activity with or through a corporation listed among the Second Credit Group; or from cash and deposits at such corporations; or from the value of a foreign security loaned through an Israeli member of the stock exchange that does not meet the conditions set in the First Credit Risk Group (hereinafter: Exposure to Banks and Brokers), in the following circumstances or rates: Overall exposure to exposure to Non-Investment Grade Bonds and/or bonds of a Company with No Link to Israel (unless such bonds are rated AAil and above or equivalent) and Exposure to Banks and Brokers may exceed the fund’s maximum exposure to equities as evident from the fund’s exposure profile; the rate of exposure to a certain Bank and Broker may exceed 20% of the fund’s total asset value (regardless of the fund’s profile of exposure to equities); for this purpose, a First Credit Risk Group or a Second Credit Risk Group – as defined in the annex to fund managers and trustees concerning custody risks and credit risks dated August 28, 2018, and in accordance with the provisions of law in this matter as updated from time to time.

(!) – In a Fund that Is Not Class 3 – An exclamation mark in the fund’s name indicates that under its investment policy, a credit risk may be created from its exposure to Non-Investment Grade Bonds (as defined below); or to bonds of a Company with No Link to Israel (unless such bonds are rated AAil and above or equivalent) (as defined below); or from derivatives activity with or through corporations listed among the Second Credit Group (as defined in the annex to fund managers and trustees concerning custody risks and credit risks); or from cash and deposits at such corporations; or from the value of a foreign security loaned through an Israeli member of the stock exchange that does not meet the conditions set in the First Credit Risk Group (hereinafter: Exposure to Banks and Brokers), in the following circumstances or rates: Overall exposure to exposure to Non-Investment Grade Bonds and/or bonds of a Company with No Link to Israel (unless such bonds are rated AAil and above or equivalent) and Exposure to Banks and Brokers may exceed the fund’s maximum exposure to equities as evident from the fund’s exposure profile; the rate of exposure to a certain Bank and Broker may exceed 10% of the fund’s total asset value (regardless of the fund’s profile of exposure to equities); for this purpose, a First Credit Risk Group or a Second Credit Risk Group – as defined in the annex to fund managers and trustees concerning custody risks and credit risks dated August 28, 2018, and in accordance with the provisions of law in this matter as updated from time to time.

“Non-Investment Grade Bonds” – A corporate bond and/or a bond issued by a state that is not the State of Israel, that is not rated, or that is rated below BBB or equivalent.

“Company with No Link to Israel” – A company that all of the following applies to it: its bonds are listed for trading in Israel; its place of incorporation is outside Israel; its business is managed outside of Israel and its shares were not offered to the public in Israel. For this purpose, a company whose chief executive officer or active chairman of the board is an Israeli resident, and most members of its board of directors are Israeli residents, shall be deemed a company whose business is managed in Israel.

In exchange-traded funds (ETFs) and open tracking funds, the fund manager may set a "safety tier" at a variable rate depending on the fund’s characteristics (0.1%, 0.2%, or 0.3%). This variable component reflects the difference between the fund’s return and the tracked index over a calendar year.

The variable management fee mechanism is a symmetric mechanism that includes both positive management fees (an addition to the manager’s fee if the fund’s return exceeds the tracked asset’s return) and negative management fees (a refund of management fees if the fund’s return is lower than the tracked asset’s return).

If the fund underperforms relative to the tracked index, the fund manager will cover the difference up to the set tier. In the case of outperformance, the fund manager may charge variable management fees up to the set tier for the fund.

Purchase or sale orders for a mutual fund can be placed during stock exchange trading hours and are executed through all banks and non-bank stock exchange members designated as distributors. Orders can be placed in several ways: in-person or telephone contact with the distributor, through the distributor’s website, through an investment advisor at the bank, or on the bank’s website.