Retained Earnings of Mutual Funds

Current treatmentDirect foreign investment, insurance and pension funds: cases where imputation is made for retained earnings:

income payable to owner.income returned as:

• premium supplements - insurance and pension funds.

• reinvestment (financial account) - direct foreign investment).

SNA has no other imputations for retained income.

Current treatmentESA95 extends the treatment to mutual funds.

through financial account.

ESA95 also classifies the income payable to the owner on the basis of the income receivable by the mutual fund. (So interest is payable on the fund holder's equity.)

ConcernsInconsistency between SNA and ESA.Not a clear rationale for mutual funds vs. other cases in either manual.

Is there a coherent view of income and saving underlying the treatments? • Control of decision-making about income and saving?

– Foreign direct investment, but not local subsidiaries.– Extension to government subsidiaries raised by TFHPSA.– Insurance and pension funds may give little or no control to

owner.• Link to particular instrument category (as in SNA) or extend to other

collective investment schemes (mutual funds are a part of equity, different instrument)?

– Premium supplements to get production right for insurance.– If mutual funds, why not other equity?

Options

(1) SNA.(2) ESA 95.(3) Modified ESA 95 (so that mutual fund earnings are

dividends in all cases).(3A) Modified ESA95 plus group mutual funds with other

collective investment schemes in instrument classification.(4) Change the treatment of pension funds to be consistent with

the treatment of mutual funds in the SNA.(5) Change the treatment of pension funds and insurance to be

consistent with the treatment of mutual funds in the SNA.

Question

Establish working group on income?

Longer term view to get coherent view of income.