Umbrella fund is actually an organizational structure of open-end fund. Under this organizational structure, the fund sponsors initiated the establishment of a number of funds that can only be converted according to the prescribed procedures according to a general fund prospectus. These funds are called sub-funds or constituent funds. The fund system composed of these sub-funds is called umbrella fund. Furthermore, umbrella fund is not a specific fund, but a management method of many funds initiated and managed by the same fund sponsor. Therefore, it is generally believed that an umbrella structure may be more suitable.

Umbrella fund has many advantages. For fund companies, umbrella fund structure can effectively reduce management costs. All the sub-funds under the umbrella fund operate within the same management framework and enjoy economies of scale in custody, audit, legal services and management fees, thus reducing management costs. In addition, umbrella funds help fund management companies to stabilize customers and reduce redemption pressure.

For investors, umbrella funds provide broader investment opportunities. Umbrella funds generally subdivide the investor market and set up various sub-funds according to their different needs. For example, China Merchants Antai series funds set three different risks according to investors' different preferences or risk tolerance-income-level sub-funds: China Merchants Bond Fund, China Merchants Balanced Fund and China Merchants Equity Fund; Cai Xiang Hefeng Industry Series Fund consists of three types of funds: value optimization growth type, cycle type and stable type. The diversity of fund types provides investors with broader investment opportunities. Secondly, an important feature of umbrella fund is that investors can switch freely under the same umbrella fund, and investors do not need to spend any money or only need to pay very low fees when switching between sub-funds of umbrella fund according to their own needs and changes in market conditions. Compared with investors switching from one open-end fund to another, it is not only low-cost but also efficient. This is the biggest advantage of umbrella fund and one of the main reasons why umbrella fund is favored by investors. (shanghai securities news Guotai Junan Securities)