I am currently on chapter 2.3.8 in the Series 66 textbook. I understand what Subchapter M is for REIT’s and Mutual Funds, I can assume ETF’s can qualify for this Subchapter M as well, at least for the managed ETF’s not he passive ones.
The last question I had about the Subchapter M is in regards to REIT’s. It states in order for a REIT to qualify for the Subchapter M it needs to have 75% of the REIT invested in Real Estate or income from Real Estate. Does that mean up to 25% of a REIT’s can be invested in other securities?
Thank you in advance for clarifying this for me. I understand this is not a question that will most likely be on the Serie 66 exam but I want to have a better understanding on what I am reading.
I am currently on chapter 2.3.8 in the Series 66 textbook. I understand what Subchapter M is for REIT’s and Mutual Funds, I can assume ETF’s can qualify for this Subchapter M as well, at least for the managed ETF’s not he passive ones.
You are correct! Subchapter M (the conduit rule) applies to ETFs as well (both passive and active). The rule is the same one applicable to mutual funds.
The last question I had about the Subchapter M is in regards to REIT’s. It states in order for a REIT to qualify for the Subchapter M it needs to have 75% of the REIT invested in Real Estate or income from Real Estate. Does that mean up to 25% of a REIT’s can be invested in other securities?
Yes! The REIT could invest 25% of portfolio assets into anything and still qualify for the tax break.
Thank you in advance for clarifying this for me. I understand this is not a question that will most likely be on the Serie 66 exam but I want to have a better understanding on what I am reading.
You could certainly encounter a question or a few on this topic. We’re always happy to clarify!