On September 27, 2014, the Law on Investment Funds was approved and subsequently came into force, marking the introduction of these collective savings and investment vehicles at the national level with the benefits that they bring to the market. The objective of these financial vehicles is incentivizing the access for small investors to the financial and capital markets, opening the possibility of diversifying investments and channeling capital to productive sectors through uncommon financing structures, including the real estate and infrastructure sectors, through figures like risk capital investment, among others. The expected benefits generated by said legislation for the Salvadoran economy and investors from all fields, among others, would include the access to alternative non-traditional financing methods, which are expected to generate greater liquidity to the financial market, as well as the diversification and better risk management, lower transaction costs, a specific and stable legal structure, and the professional management of resources.

One of the most important points of this Law is the creation of the Investment Fund Managing Companies, which shall be responsible for all acts, contracts and operations necessary for the management and operation of said funds, and whose regulation and approval would be delegated to the National Reserve Bank of El Salvador. On March 19, 2015, the Comité de Normas del Banco Central de Reserva de El Salvador (Standards Committee of the National Reserve Bank of El Salvador) approved the “Normas Técnicas para la Autorización de Constitución, Inicio de Operaciones, Registro, y Gestión de Operaciones de las Gestoras de Fondos de Inversión”, ("Technical Standards for Authorization of Constitution and Start of Operations, Registration, and Management of Operations of the Managing Companies of Funds") which came into effect on April 8, 2015, marking the moment in which the Companies dedicated to investment funds management can be authorized and may start their operations.

These Standards broaden the provisions of the Law on Investment Funds, establishing the requirements and the process for the constitution of Investment Fund Managing Companies, the beginning of their operations and that these Companies may apply for registration, in accordance with the provisions of the Law on Investment Funds. Furthermore, the legislation shall regulate operations carried out by such Companies during their operation. The approved Standards reflect international standards on investment funds management, the management of risks, and conflicts of interest, among others.

In terms of operation, currently the Law on Investment Funds demands that these Managing Companies have a minimum equity of $350,000.00 for operation, be it for open or closed funds and with varying requirements to a minimum number of participants, and will be allowed to invest in a wide range of assets, whether they be local or foreign, fixed income or variable income, or issued by public or private entities.

Furthermore, in conjunction with the adoption of the aforementioned Law, certain incentives have been established in the Salvadoran legal spectrum in order to encourage the use of these investment figures. For example, during the first five years after the establishment of the Fund, investors (natural persons) shall be exempt from the payment of Income Tax applicable to income or perceived profits from both open and closed investment funds. In addition, according to structures announced by the first planned Managing Companies, natural persons may access investment funds with a minimum investment of $500.00, a lesser amount than that required by the portfolio management financial vehicle (which has been the investment fund’s counterpart until their recent approval), which typically exceeded $1,200.00 as a minimum requirement.

It is expected that the new regulation allows for the integration of capital markets that operate in Central America as well as in the rest of the continent, as part of its objective is to encourage the flow of capital across borders. In addition, the potential sectors that could benefit from the creation of Investment Fund Managing Companies are varied, including financial groups, legal firms, securitization firms, consultants, insurers, auditors, and builders. In Central America, investment funds move nearly $500,000,000.00 at any given time, and it is currently projected that El Salvador will become the third largest operator in the region. It is expected that these Investment Fund Managing Companies begin their operations in the second semester of this current year.