Funds and government bonds as a basis for residence

As property routes closed across Europe, capital routes replaced them: qualifying investment funds, government securities, and bank deposits. They deserve assessing as financial products, because that is what they are.

The instruments

• Qualifying investment funds — regulated vehicles approved for the purpose, with a holding period matching the permit. Portugal's remaining route runs this way.
• Government securities, used by Bulgaria and others, where the return is low and the risk is sovereign.
• Bank deposits, locked for a term, used in the Gulf, Malaysia, Thailand and elsewhere.
• Company capital, which is the entrepreneur route in another form.

What to examine

• Who manages it, and what else they manage. A fund that exists only to serve a residence programme has one client type and one reason to exist.
• The underlying assets. Several qualifying funds hold — directly or indirectly — the same property the programme was closed to stop people buying. That is legal and it is worth knowing.
• Fees. Subscription, management, performance and redemption charges in these vehicles are frequently well above market for comparable strategies, because the buyer is captive.
• Liquidity. A holding period tied to a permit means you cannot exit when you would like to, only when the status permits.
• What happens if the fund performs badly. The permit generally requires maintaining the investment, not maintaining its value — but a fund that loses money below the threshold raises a question nobody wants to be first to ask.
• Currency. A euro-denominated commitment for a dollar-based investor is an exchange position held for the length of the permit.

The honest comparison with property

Property routes gave you an asset you could see, use and let, with a market price. Capital routes give you a financial instrument with an opportunity cost and, in the fund case, a fee load. Neither is inherently better; they fail differently.

The question that clarifies it: would you buy this fund, at these fees, if it carried no permit? Where the answer is no, calculate the annual cost of the difference and treat that as the price of the status. It is usually a larger number than the application fee, and it is the number that belongs in the decision.