OREANDA-NEWS. According to Fitch Ratings, the creation of 'Simple Funds' by the Brazilian Securities and Exchange Commission (CVM) -- as a result of Instruction 555/14, effective Oct. 1, 2015 -- will promote small investor participation in capital markets by providing easier access and potential for higher returns relative to savings accounts with similar risk.

The Simple Fund may be distributed through electronic channels, exempting the investor from filling in documents such as suitability questionnaires and fund term sheets. Further, the mailing of letters and contracts will be eliminated, which tends to contribute to reduced costs, which can lead to lower fees.

The Simple Fund will be a low risk product and should have at least 95% of its net asset value invested in Brazilian sovereign debt bonds, or in securities from financial institutions with risk lower or at least equivalent to Brazilian sovereign risk. The goal is to create simplified processes for subscriptions and monitoring; making the appeal for this vehicle similar to that of savings accounts only with higher returns.

With the creation of Simple Funds, in addition to growth of the investor base, a migration is expected from savings accounts and DI-linked funds with higher fees to this new product. Partly due to this reason, the participation of large banks and fund distributors is not unanimous with regard to these new Simple Funds. Many have already argued in favor of these funds and promise to detail their distribution strategies as soon as the regulation becomes effective. Others, however, are cautious in relation to this initiative, mainly for the fear that cannibalization may occur to the assets under management (AUM) allocated to DI-linked funds, which currently generate higher fees.