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A tokenized fund is an ordinary investment fund whose shares or units are recorded as tokens on a blockchain instead of, or alongside, a conventional share register. The portfolio, the manager, the administrator, the custodian and the auditor are the same as in any other fund; what moves onchain is the record of who owns how many units, and with it the way units are issued, transferred and cancelled.
That one change has practical consequences. The token can move at any hour, yet the fund still prices once per dealing day. The token can sit in a wallet, yet only wallets the fund has approved can receive it. And the token may or may not be the legal record of ownership, depending on how the fund was set up and under which law. This article is general information for professional readers, not legal, tax or investment advice, and the rules described differ from one country to the next.
Worked example detailed below: $500,000 subscribed, an illustrative net daily income of 0.012% for 90 days. The rate is an assumption chosen for the arithmetic, not a forecast of any fund's return.
What changes and what stays the same when a fund is tokenized?
Tokenizing a fund changes how ownership of its units is recorded and transferred; it does not change what the fund owns, who manages it or which rules it answers to. The fund remains a company, a trust or a partnership with a prospectus or offering document, an investment policy, a board or trustee, and the same service providers around it.
Each role keeps its job. The manager decides what the fund buys and sells. The administrator values the portfolio and calculates the net asset value, the figure usually shortened to NAV. The custodian or depositary holds the fund's assets, which in most tokenized funds today are conventional securities held in conventional accounts. The auditor signs the accounts. The transfer agent, also called the registrar, keeps the register of unitholders and processes subscriptions, redemptions and transfers. Tokenization lands almost entirely on that last role.
IOSCO, the international body of securities regulators, described three levels at which tokenization can touch a fund in its 2025 final report on the tokenization of financial assets: the fund's own units, the assets the fund holds, and the cash flows between them. The report found that current products tokenize at the first level only: units are issued as tokens at subscription and burned at redemption, while the portfolio is managed in the traditional way.
Who keeps the register, and is the chain the official record or a mirror?
The transfer agent or registrar still keeps the register of a tokenized fund, and whether the blockchain is the official record or only a copy of it depends on the model the fund chose and the law it is formed under. This is the first question to ask about any tokenized fund, because it decides what a token transfer legally does.
Staff of the United States Securities and Exchange Commission set out the models in a January 2026 statement on tokenized securities. Where the issuer itself sponsors the token, the statement describes two approaches. In the first, the issuer or its agent integrates the ledger into the systems it uses to record owners, so that a transfer of the token results in a transfer of the security on the master securityholder file. In the second, the security is issued offchain and the token conveys none of the security's rights: moving it serves to notify the issuer or its agent, who then records the transfer in the offchain records. The statement separates both from tokens issued by an unaffiliated third party, which can expose holders to risks tied to that party.
| Register model | What a token transfer does | What the holder should confirm |
|---|---|---|
| Chain is the register | Changes the legal owner when the transfer is confirmed onchain | The law that recognises the onchain record, and the agent's power to correct it |
| Chain is part of the register | Updates the primary record, subject to the transfer agent's control | Which record prevails if the two differ |
| Chain mirrors an offchain register | Instructs the agent, who updates the official offchain record | When the transfer takes legal effect, and how often records are reconciled |
| Third-party token | Moves a claim on an intermediary that holds the units | Who the intermediary is and what the claim is against |
IOSCO's report makes the same point from market practice. It calls identifying the legal record essential, because hybrid arrangements are common, and it describes three live funds that give three different answers: one where the blockchain forms an integral part of the primary record under the transfer agent's control, one where an offchain database is the legal record and onchain transfers take effect once reconciled, and one where the onchain register is the legal record under the national law that governs the fund.
Whichever model applies, the agent keeps a power an ordinary token does not have: the ability to correct the register. In the United Kingdom, the Financial Conduct Authority's 2025 consultation on fund tokenisation proposed that a manager keeping the unitholder register on a distributed ledger must remain able to update it unilaterally, for example by burning and reissuing tokens or by a later entry that reverses a wrong one. In a fund set up that way, a lost key or a mistaken transfer can be remedied by the fund's agent.
How does a subscription to a tokenized fund work, step by step?
A subscription to a tokenized fund follows the same sequence as any fund subscription, with a wallet added at the start and a token mint in place of a register entry at the end. The investor is approved, sends an order and the money before a cut-off, receives the next calculated price, and is issued units at that price.
The figures in the steps below come from a worked example used throughout this article. An investor subscribes $500,000 into a fund whose accumulating class is priced at $100.00 per unit on the dealing day. The dealing cut-off of 14:00 and the settlement of units on the next business day are illustrative: each fund sets its own in its offering document.
- Onboarding and wallet approvalThe investor passes the fund's identity, eligibility and anti-money-laundering checks, as for any fund. The transfer agent then adds the investor's wallet address to the allowlist, the list of addresses permitted to hold the token.
- Order before the cut-offThe investor places an order for $500,000 at 11:00 on Tuesday, before the 14:00 cut-off. The order is for an amount of money, not a number of units: the price is not yet known.
- PaymentThe $500,000 reaches the fund's subscription account by bank transfer or, where the fund accepts it, in a dollar stablecoin sent to a designated address.
- ValuationAt Tuesday's valuation point the administrator calculates the net asset value per unit: $100.00.
- MintThe transfer agent issues $500,000 / $100.00 = 5,000 units as tokens to the approved wallet on Wednesday. The register now shows 5,000 units against that address.
- ConfirmationThe investor receives a contract note stating the amount, the price and the units, and can read the same balance onchain.
Two details differ from fund to fund. Units are usually divisible to several decimal places, so a second investor who subscribes $250,000 on a day when the price is $101.0858 receives 2,473.1466 units, not a round number. And an order placed after the cut-off is not rejected: it is carried to the next dealing day and receives that day's price. An order placed at 15:30 on Tuesday in the example is dealt at Wednesday's net asset value, and its units are issued on Thursday.
Why does a token move in seconds when the fund deals once a day?
A token transfer between two approved holders settles in seconds because it only rewrites the register, while a subscription or redemption changes the size of the fund and therefore waits for a price and for the portfolio's cash. The two operations use the same token but are different events.
Net asset value is the fund's assets minus its liabilities, divided by the units in issue. The administrator can only strike it after markets have given prices for what the fund holds, and it applies to every order received before the cut-off. That is forward pricing: nobody subscribing or redeeming knows the exact price when they place the order.
Cash follows the same logic. To pay a redemption, the fund must hold cash or sell assets, and those sales settle on the cycle of their own market. Where a fund offers faster redemptions within set limits, that speed comes from a cash buffer or liquidity facility, not from the token.
The Bank for International Settlements drew attention to that gap in a 2025 bulletin on tokenised money market funds. It noted that these funds carry liquidity mismatches that mirror, and could amplify, those of conventional money market funds: a token that changes hands continuously sits on top of a portfolio that cannot be liquidated continuously.
How does a redemption work?
A redemption reverses a subscription: the holder sends a redemption order before the cut-off, the units are valued at the next net asset value, the tokens are burned and the cash is paid on the settlement date. The holder never sells the token to the fund at a negotiated price; the fund cancels units at its published price.
Continue the example. Ninety days after subscribing, the accumulating class is priced at $101.0858 per unit, and the investor redeems 2,000 of the 5,000 units. The proceeds are 2,000 x $101.0858 = $202,171.60. The 2,000 tokens are burned, the register shows 3,000 units remaining, worth $303,257.40 at that price, and the cash arrives on the settlement date by the route the fund offers: a bank transfer, or a dollar stablecoin where the fund pays that way.
Depending on the design, the holder sends the tokens to a redemption address or the transfer agent burns them from the wallet on instruction. A neighbouring article on this site covers how the redemption payment itself reaches a holder who exits, so the point to retain here is the sequence: order, price, burn, cash.
Redemption terms carry the conditions any fund may impose. Notice periods, minimum holdings, limits on the share of the fund that can be redeemed in one period, and the right to suspend dealing in stressed markets all apply to the tokenized units exactly as they would to units on paper.
How does income reach the holder: accumulating, distributing and rebasing classes?
Income reaches the holder of a tokenized fund in one of three ways: the price of each unit rises (an accumulating class), cash is paid out while the unit count stays the same (a distributing class), or new tokens are added to the holder's balance while the price stays fixed (a rebasing class). All three deliver the same economic result before the effect of reinvestment; they differ in what the holder sees in the wallet.
A rebasing token is the onchain form of a familiar structure: a fund that aims to hold its price constant, typically at $1.00, and declares its income every day as additional units. Each day, every holder's balance is multiplied by the same factor, so no transfer is sent to anyone.
Here is the same investment in each class. The assumptions: $500,000 subscribed; an illustrative net income of 0.012% per day, after the fund's costs, held constant for 90 days; a starting price of $100.00 per unit in the accumulating class and $1.00 in the other two; the distributing class pays its income in cash and does not reinvest it. Compounding 0.012% over 90 days gives a growth factor of 1.0108579, or 1.0858%.
| Share class | Tokens on day 0 | Tokens on day 90 | Price per token on day 90 |
|---|---|---|---|
| Accumulating | 5,000 | 5,000 | $101.0858 |
| Rebasing | 500,000 | 505,428.94 | $1.00 |
| Distributing | 500,000 | 500,000 | $1.00, plus $5,400 paid in cash |
The accumulating holding is worth 5,000 x $101.0858 = $505,429.00. The rebasing holding is worth $505,428.94; the six-cent difference comes only from rounding the unit price to four decimal places. On the first day the rebasing balance grows by 500,000 x 0.012% = 60 tokens, and on the second by slightly more, 60.0072, because the 60 new tokens earn income too. The distributing holding pays $60 a day, $1,800 per 30 days and $5,400 over the 90 days, for a total of $505,400. That is $29.00 less than the accumulating class: the income earned on reinvested income, which the distributing class pays out instead.
The class matters for operations more than for economics. An accumulating token has a constant balance and a moving price, which suits systems that expect a fixed quantity, such as a collateral agreement. A rebasing token has a constant price and a moving balance, which is convenient for cash management but can confuse accounting systems, custody platforms or smart contracts that assume a balance changes only when a transfer happens. A distributing class creates a payment to process on every distribution date and a record date to respect: whoever is on the register at that moment receives the cash. The mechanics of a distribution to many holders, and of the capital calls used by closed-ended funds that draw committed money over time, are covered in their own articles on this site; an open-ended fund of the kind described here takes the full subscription up front and has no capital calls. Tax treatment can also differ between the three classes and between countries, a question for a tax adviser in the holder's own jurisdiction.
Who can a holder transfer the tokens to?
A holder of a tokenized fund can transfer tokens only to another wallet that the fund's transfer agent has approved, because the token contract checks every transfer against an allowlist. A transfer to any other address fails; it is not sent and then reversed.
The allowlist is how the fund carries its legal restrictions onto the ledger. Fund units are securities, and most tokenized funds are offered only to defined categories of investor in defined countries. On a conventional register, the agent enforces that by refusing to record an ineligible transferee. Onchain, the same refusal is written into the token: the contract can check that the receiving address is approved, that the investor behind it is of the right type, that a holding period has passed or that a cap on holder numbers is respected.
Between two approved holders, the transfer is direct and needs no order to the fund. Units of a conventional fund generally leave a holder only by redemption, while tokenized units can pass to another eligible investor at an agreed price, at any hour, without the fund's cash being touched. Whether a market for such transfers exists is another matter. IOSCO's report observed that distribution and secondary trading of tokenized assets still rely largely on conventional infrastructure and intermediaries.
The Bank for International Settlements added a caution in its bulletin: allowlists constrain who holds the token directly, not every form of exposure to it. A token deposited into another arrangement can back claims held by parties the fund never onboarded. For a holder, the working rule is simpler: check that your counterparty's wallet is approved before agreeing a transfer.
Can tokenized fund units be used as collateral?
Tokenized fund units can be pledged or transferred as collateral without first being redeemed into cash, and that use is one of the main reasons institutions hold them. The unit keeps earning inside the fund while it secures an obligation elsewhere.
In outline, the collateral giver transfers the tokens to the collateral taker's approved wallet, or locks them in an account controlled under a collateral agreement. The taker values them at the fund's latest net asset value and applies a haircut, a percentage deducted to cover the time and price risk of turning the units into cash. With an illustrative 2% haircut, the 3,000 accumulating units left in the example, worth $303,257.40, would count as $297,192.25 of collateral, a deduction of $6,065.15.
Official bodies treat this use as promising and as a source of risk. IOSCO's report notes that tokenized money market fund units can move as collateral without redemption into cash. The Financial Conduct Authority, in its consultation, listed the use of such units as collateral for derivatives that are not centrally cleared among the priority use cases it is exploring, while flagging that it could create new financial stability risks. The reason is the two clocks again: collateral that can be called in minutes rests on a fund that redeems on a daily cycle, so many takers redeeming at once would press on the fund's liquidity. A taker should also confirm that its own wallet is on the allowlist and that it could redeem the units itself after a default, which requires being an eligible investor in the fund.
What fees does a tokenized fund charge?
A tokenized fund charges the same fees as any fund, chiefly a management fee and its operating costs, both accrued inside the net asset value; the token adds network transaction costs and sometimes a platform or minting charge. Tokenization changes how units are recorded, not what the manager is paid for.
The management fee is a percentage of assets per year, accrued each day and deducted in the valuation, so the holder never receives a bill: the published price is already net of it. With an illustrative fee of 0.20% a year, a $500,000 holding bears $1,000 a year, about $2.74 a day and about $246.58 over 90 days, ignoring the growth of the holding. The 0.012% daily income in the example above is stated after such costs. How a manager's fee is collected onchain and drawn from a fund's proceeds is the subject of other articles on this site.
Two costs sit outside the net asset value and deserve a question before subscribing: a subscription, redemption, platform or minting charge where one is levied, shown on the contract note or in the platform's terms, and the network transaction fee. A network fee is paid in the blockchain's own asset, so a holder who transfers tokens needs a small balance of it, and an institution may need a policy for holding it. The Financial Conduct Authority raised the same point for fund managers in its consultation, comparing these fees to transaction charges. Where money enters or leaves in a dollar stablecoin, the cost of converting to and from bank money is also part of the cost of dealing.
What have official bodies published on tokenized funds?
Official bodies have published a consistent message on tokenized funds: the technology changes the record, not the law that applies, and adoption remains limited. Four publications give the outline.
IOSCO's final report on the tokenization of financial assets, published in 2025, states that the use of distributed ledger technology should not in itself materially affect the applicability of existing regulatory principles. It finds that most risks fall into existing categories, such as legal uncertainty over ownership and transfer, operational risk and settlement risk, while some are specific to the technology: loss of private keys, errors in smart contracts, network congestion. It describes the market as nascent, reporting that 91% of the respondents to its survey had no or very limited commercial use.
The Bank for International Settlements' 2025 bulletin on tokenised money market funds describes them as tokens that circulate on public blockchains, pay money market rates and carry the regulatory protections of securities, and it names the liquidity and allowlisting limits discussed above.
The staff statement from the Securities and Exchange Commission in January 2026 says that federal securities law applies in the same way whatever format a security takes and however its holders are recorded. A tokenized fund share in the United States is therefore subject to the same registration, disclosure and transfer agent rules as the untokenized share.
In the United Kingdom, the Financial Conduct Authority published its policy statement on progressing fund tokenisation in April 2026. It adds guidance for managers of authorised funds who keep the unitholder register on a distributed ledger, and creates an optional direct-to-fund dealing model in which investors transact with the fund itself, whether the fund is tokenized or not. Other countries have their own regimes, and a fund's home law, not the blockchain it uses, decides which one applies.
What should a professional investor check before subscribing?
Before subscribing to a tokenized fund, a professional investor should check the same documents as for any fund and then answer a short list of questions the token adds. All are answered in the offering document or by the transfer agent.
- The legal record. Which register is the official one, onchain or offchain, and under which law? If the two differ, which prevails?
- The transfer agent's powers. Can the agent freeze, burn and reissue units, and in which circumstances? What is the procedure if access to the wallet is lost?
- Dealing terms. Cut-off time, valuation point, settlement period, notice, limits and suspension rights for redemptions. Any faster redemption route, with its limits and who funds it.
- The cash leg. Whether subscriptions and redemptions are paid in bank money, a dollar stablecoin or both, and who bears the conversion.
- The share class. Accumulating, distributing or rebasing, and whether your custody, accounting and reporting systems handle that behaviour.
- Transfer restrictions. Who may be on the allowlist, how a counterparty is added, and whether any holding period applies.
- The network. Which blockchain or blockchains carry the token, and what the fund does if the network is unavailable on a dealing day.
- Costs. The ongoing charges inside the net asset value, plus dealing, platform and network costs outside it.
