Tokenized Investment Funds: Structure & Compliance 2025
Fund tokenization: This article covers tokenized funds. For comprehensive RWA guidance, see Tokenizing Real-World Assets: Real Estate, Supply Chain & Finance in 2025. Also relevant: How to Invest in Tokenized Assets: Complete 2025 Guide.
Traditional investment funds lock capital for 7-10 years and require $5M-$50M minimums. Tokenized funds democratize access by enabling fractional participation ($1K-$100K), transparent NAV tracking, and emerging secondary liquidity. This guide covers fund tokenization structures and compliance frameworks.
For comprehensive context, see our Ultimate Guide to Tokenization and RWA. Learn fund-specific strategies in our Tokenized Investment Funds guide, and understand compliance in our Tokenization Legal Structure guide.
Fund Tokenization Overview#
Why Tokenize Funds?#
Traditional Fund Structure:
- Minimum investment: $5M-$50M
- Liquidity: None (7-10 year lockup)
- Fee transparency: Quarterly reports (opaque)
- Investor onboarding: 6-8 weeks
- Management: Manual cap table, distributions
Tokenized Fund Structure:
- Minimum investment: $1K-$100K
- Liquidity: Secondary markets emerging
- Fee transparency: Real-time blockchain visibility
- Investor onboarding: 24-48 hours
- Management: Automated smart contracts
Market Opportunity#
Fund Market:
- Global AUM: $75T+
- Excluded from funds: 90% of population (minimums too high)
- Tokenization opportunity: $50T-$70T addressable
Growth Projections:
- 2024: $10B-$20B tokenized funds
- 2025: $30B-$50B
- 2028: $200B-$500B (institutional mainstream)
Fund Tokenization Structures#
Model 1: Real Estate Fund Tokens#
Traditional Real Estate Fund:
- Target: $200M raise
- Minimums: $5M per investor
- Max investors: 40
- Liquidity: None (10-year hold)
- Fee: 2% management + 20% performance
Tokenized Structure:
- Target raise: $200M (same)
- Tokenized: 2M tokens @ $100/token
- Minimums: $1K (10 tokens)
- Max investors: 200,000+
- Liquidity: Secondary markets
- Fee: 1.5% management + 20% performance (competitive)
Investor accessibility:
- Traditional: Only 40 ultra-high-net-worth investors
- Tokenized: 200,000 institutional + accredited retail
- Democratization: 5,000x more investors
Capital deployment:
- Fund manager deploys capital into real estate
- Properties purchased by SPVs
- Monthly/quarterly distributions to token holders
- Real-time NAV (token price reflects portfolio value)
Model 2: Hedge Fund Tokens#
Tokenized Hedge Fund:
- Strategy: Multi-strategy alternatives (5-8% target)
- Assets: $500M managed
- Minimums (traditional): $10M per investor
- Minimums (tokenized): $5K per investor
Token economics:
- Fund tokens: 5M @ $100 = $500M
- Annual distribution: 5% = $5/token ($25M)
- Annual yield: 5%
- Management fee: 1% ($5M)
- Net distributions: 4% = $20M
Performance fee:
- If returns 10%: 2% performance fee
- Extra distribution: $10M
- Total distributions: 8% = $40/token
- Yield: 8% (up from 5% base)
Investor access:
- Accredited: Purchase $5K-$5M+ tokens
- Hold period: Daily liquidity option (secondary market)
- Tax: 1099 equivalent quarterly
- Transparency: Daily NAV updates
Model 3: Index Fund Tokens#
Tokenized Asset Allocation Fund:
- Strategy: Diversified indices (stocks, bonds, commodities)
- Assets: $100M managed
- Allocation:
- 60% Equities ($60M)
- 30% Bonds ($30M)
- 10% Commodities ($10M)
Token structure:
- Fund tokens: 1M @ $100 = $100M
- Annual yield: 5-7% (blended returns)
- Management fee: 0.5% ($500K)
- Performance fee: None (passive)
Investor benefits:
- Instant diversification
- Low minimums ($1K-$1M)
- Low fees (0.5% vs. 1-2% traditional)
- Daily pricing (transparent)
- Redemption: Weekly (liquidity)
Expected returns:
- Stock portion: 8-10%
- Bond portion: 4-5%
- Commodity portion: 5-7%
- Blended: 6-7% annually
Regulatory Compliance Framework#
US Regulatory Structure#
Investment Company Act:
- Regulated investment company (RIC) classification
- Diversification requirements
- Reporting obligations
- Investor protection rules
Securities Act:
- Regulation D (accredited only)
- Regulation A+ (up to $75M public offering)
- Regulation CF (up to $5M crowdfunding)
Tax Treatment:
- Pass-through taxation
- Distributed earnings taxed at investor level
- 1099-DIV reporting
Fund Structuring Options#
Delaware LLC + Fund:
- Flexible structure
- Tax efficient
- Regulatory approval faster
- Preferred for alternatives
Cayman Islands Fund:
- International institutional investors
- Tax-efficient structure
- DIFC/ADGM registration
- Premium for custody/administration
Open-Ended Fund:
- Daily/weekly redemption
- Lower minimums
- Higher compliance burden
- Preferred for liquid strategies
Closed-Ended Fund:
- Fixed term (10 years typical)
- Lower redemption pressure
- Higher minimums acceptable
- Preferred for illiquid assets
Smart Contract Fund Management#
Automated Fund Operations#
Smart Contract Functions:
- Investor onboarding (KYC automated)
- Subscription processing (instant)
- Fee calculation (automatic)
- Distribution mechanics (pro-rata)
- NAV calculation (real-time)
- Performance tracking (automated)
- Reporting (instant to investors)
Technology Stack:
- Blockchain: Ethereum, Polygon, or Hyperledger
- Frontend: Investor dashboard
- Backend: Fund accounting
- Integration: Legacy systems/APIs
Risk Management in Tokenized Funds#
Key Risks#
Market Risk: Fund strategy underperforms
- Mitigation: Diversification, professional management
Liquidity Risk: Investors can't redeem
- Mitigation: Secondary markets, redemption schedule
Concentration Risk: Too much in one position
- Mitigation: Position limits, diversification rules
Smart Contract Risk: Code vulnerabilities
- Mitigation: Audits, formal verification
Risk Management Best Practices#
- Position limits (5-10% per position max)
- Sector diversification
- Currency hedging (international)
- Stop-loss mechanisms
- Quarterly stress testing
- Insurance coverage
Fund Tokenization Case Study#
Venture Capital Fund (Tokenized)
Traditional Structure:
- Target raise: $300M
- Minimums: $10M
- Max investors: 30
- Carry: 20%
- Management fee: 2%
Tokenized Structure:
- Target raise: $300M
- Tokenized: 3M tokens @ $100
- Minimums: $5K (50 tokens)
- Max investors: Unlimited (100,000+)
- Carry: 20% (same)
- Management fee: 2% (same)
Capital deployment:
- 10 seed investments ($5M each) = $50M
- 20 Series A investments ($10M each) = $200M
- 20 Series B reserves ($2.5M each) = $50M
- Total: $300M deployed
Token economics:
- Year 1-3: Annual distributions from dividends (0-2% yields)
- Year 4-7: Follow-on liquidations (2-5% annual)
- Year 7+: Exit liquidity (20-30% total IRR)
Secondary market:
- Tokens trade at 5-15% discount (illiquidity premium)
- Provides partial liquidity for early investors
- Price reflects portfolio value and exit prospects
Final outcomes (10-year hold):
- Target IRR: 25%+
- Probability: 40-50%
- Expected value: 25%+ × 50% + 15% × 30% + 5% × 20% = 17.5% blended IRR
- Token value: $100 → $460+ (4.6x return)
Implementation Steps#
For Fund Managers#
- Strategy Definition: Fund objective, asset class, target returns
- Legal Structure: Choose entity (Delaware LLC, Cayman, etc.)
- Regulatory Filing: SEC Form N-1A (RIC) or Reg D/A+
- Tokenization: Smart contracts, token mechanics
- Infrastructure: Custody, admin, reporting systems
- Marketing: Target institutional + accredited investors
- Launch: Accept subscriptions, deploy capital
- Management: Ongoing fund operations and reporting
For Investors#
- Research: Fund strategy, manager track record
- KYC: Accreditation verification
- Review: Prospectus, fee structure, risks
- Invest: Purchase tokens
- Monitor: Quarterly statements, NAV updates
- Rebalance: Trade on secondary market if desired
- Exit: Redemption or hold to maturity
FAQ#
Q: How are tokenized fund fees typically structured? A: Management fee (0.5-2.5%) + Performance fee (0-20%). Lower than traditional funds due to automation.
Q: Can I redeem early? A: Depends on fund. Open-ended funds: weekly. Closed-ended: typically at end of term.
Q: What minimums apply? A: Tokenized funds: $1K-$100K typically. Traditional funds: $5M-$50M+.
Q: How is NAV calculated? A: Daily or quarterly. Smart contracts update portfolio value automatically.
Q: Are distributions taxable? A: Yes, treated as income to investor. 1099-equivalent reported.
Q: Can non-accredited investors participate? A: Only through Reg A+ or Reg CF offerings (limited).
Conclusion#
Tokenized investment funds represent a fundamental shift in how capital is pooled and deployed. By enabling fractional participation, transparent management, and emerging liquidity, tokenized funds unlock $50T+ in previously inaccessible investment opportunities for global investors.
Invest in tokenized funds on Pedex today.
Learn More: Real-World Assets Tokenization#
Comprehensive RWA Guide:
→ Tokenizing Real-World Assets: Real Estate, Supply Chain & Finance in 2025 - Complete RWA tokenization framework
Related Financial Assets Articles:
- Private Credit Tokenization: Access to Alternative Lending - Private credit
- Invoice Financing Through Tokenization: SME Guide - Invoice financing
Investment:
- How to Invest in Tokenized Assets: Complete 2025 Guide - Investment guide
- Building a Tokenized Investment Portfolio: Diversification Guide - Portfolio strategies
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