LUXEMBOURG – Certain types of institutional cash funds have been exempted from subscription tax, according to the Grand Duchy’s investment fund body ALFI.

The Association Luxembourgeoise des Fonds d'Investissement welcomed the move by the legislator. ALFI said it had “considered for a long time that the subscription tax was a major obstacle to the development of this fund type in Luxembourg”.

The new exception came into force on January 1 and concerns all UCIs and UCI compartments reserved to institutional investors that invest exclusively in cash or money market instruments with a weighted residual portfolio maturity of less than 90 days.

“The large support that this initiative received from all major political parties in Luxembourg reflects the determination of the Grand-Duchy to defend a competitive fund industry within its financial sector,” ALFI said in its most recent newsletter.

ALFI says the European market for institutional cash funds still has a lot of growth potential. It estimates the market at around 200 billion dollars in Europe – compared to 2.4 trillion dollars in the US.

At the end of August, total net assets of Luxembourg domiciled investment funds stood at 923.8 billion euros, up 9.4% on the 844.5 billion at the December 2002.

Meanwhile, the Institutional Money Market Funds Association said that it has two new members: Henderson Global Investors and Bank of Ireland Securities Services.