Commentary on Sections Overview Section 357: Exceptions to definition of “mutual fund”
649.This section provides some exceptions to the definition of “mutual fund” set out in section 356. It is based on section 40E of FA 2008.
650.Arrangements are not a mutual fund if condition D is met and either condition E or condition F is also met.
651.Condition D qualifies condition C in section 356. An investor in a company would normally only reasonably expect to be able to realise NAV on the liquidation of the company. So condition D potentially excludes from the mutual fund definition any case where a reasonable investor would only be able to realise the investment in arrangements in the event of a winding-up, dissolution or termination of the arrangements.
652.Condition E is that the arrangements are not designed to terminate on a fixed date.
653.Condition F comprises three parts.
	The first is that the arrangements are designed to terminate on a fixed date.
	The second is that subsection (5), (6) or (7) applies.Subsection (5) applies if none of the assets are chargeable income-producing assets.Subsection (6) applies if the participants in the arrangements have no entitlement to benefit from the income arising on the assets that are the subject of the arrangements.Subsection (7) applies if all of the net income arising is required to be paid or credited to participants in such a manner that a UK resident individual would be charged to income tax on the amounts paid or credited.
	The third is that the arrangements are not designed to produce a return that is, in substance, equivalent to interest.