UK UCITS Definition | Law Insider (2024)

FAQs

What is the definition of a UCITS fund? ›

An Undertaking for Collective Investment in Transferable Securities (UCITS) is an investment fund that invests in liquid assets and can be distributed publicly to retail investors across the EU.

A UCITS is an undertaking established in the UK or an EEA state with: The sole object of collective investment, operating on the principle of risk-spreading, in transferable securities or other liquid financial assets of capital raised from the public.

UCITS are open-ended investment funds and may be established as: Unit trusts; Common contractual funds; Variable or fixed capital companies; or.

UCITS is a financial vehicle that allows a group of investors to invest their money under a predetermined investment objective. The UCITS have a fund manager, who is responsible for investing money in the underlying securities. By investing in a UCITS, essentially, the investor buys units and becomes a unitholder.

No single asset can represent more than 10% of the fund's assets; holdings of more than 5% cannot in aggregate exceed 40% of the fund's assets. This is known as the "5/10/40" rule.

The UCITS Directive sets out the common standards for investor protection for regulated investment funds that can be sold to retail investors in the EU, i.e. individual investors making investments for their savings or retirement.

UCITS KIID to be retained for UK market

The FCA has confirmed in an update to its website that a UCITS KIID will continue to be required for investors in the UK post 1 January 2023 when most EU UCITS are expected to move to the European PRIIPs KID format.

The UK is no longer part of the EU's UCITS framework.

But for U.S. investors, buying into UCITS funds is a little different than buying traditional mutual funds. You can purchase UCITS funds through a U.S.-based fund manager. That said, only an authorized EU-based management company can oversee that fund.

While a UCITS fund may be marketed to European retail investors, a UCITS fund may not be marketed to U.S. retail investors without registration of the offering under the Securities Act, and registration of the UCITS fund under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

Are UCITS always open ended? ›

The key common aspects of UCITS funds are that they must be open-ended and liquid. The flexibility of UCITS is evident in that they may be set up as a single fund or as an umbrella fund that is comprised of several ring-fenced sub-funds, each with a different investment objective and policy.

The non-UCITS QIF has no borrowing limit, whereas a UCITS can only borrow up to a maximum of 10 per cent of assets and even then only on a temporary basis. The QIF has no leverage limit, whereas in general in a UCITS fund the global exposure cannot exceed the Net Asset Value.

Although they do not have legal personality, Finnish funds subject to the UCITS Directive are nonetheless considered to have tax status for the purposes of Finnish tax law.

Managing a UCITS is a regulated activity and requires authorisation from the FCA.

This has been enshrined in what is commonly known as the 5/10/40 rule which is that a UCITS may invest no more than 10% of its net assets in transferable securities or money market instruments issued by the same body, provided that the total value of transferable securities or money market instruments held in issuing ...

They may remain in the UCITS' portfolio until their maturity and be accounted for under the upper investment limit of 25%; and. as from 8 July 2022, only covered bonds that meet the Covered Bonds Directive criteria can benefit from the higher concentration limit of 25% of bonds in a single issuer.

All UCITS funds are non-complex. The majority of L&G retail funds will therefore be non- complex. Non-UCITS retail schemes (NURS) must be assessed on an individual basis to see if they meet the tests for being non-complex.

Further, Article 56(2)(c) of the UCITS Directive states that a UCITS can acquire no more than 25% of the units of any single UCITS or other CIU.

Article 52

A UCITS shall invest no more than: 5 % of its assets in transferable securities or money market instruments issued by the same body; or. 20 % of its assets in deposits made with the same body.

A UCITS, however, will invest more specifically into liquid financial assets such as bonds, shares and money market instruments. In contrast, an AIF will generally be defined as those funds that do not satisfy the criteria for regulation as UCITS.

Can UCITS hold private equity? ›

UCITS Means 'Transferable' Securities

Through derivatives, the list of eligible assets is broad; liquidity, valuation, and risk management remain the main criteria for inclusion. This means that illiquid investments such as private equity and real estate are excluded.

Generally, AIFMs, CIS operators and UCITS managers are exempt from MiFID II (as they are subject to their own specific regulation); however, if AIFMs and UCITS Managers perform certain 'top-up' MiFID activities they will be subject to certain MiFID II requirements but only in relation to such MiFID business.

UCITS may not make investments in closed end funds for the purpose of circumventing the investment limits provided for UCITS by the UCITS Directive. 4. Closed end funds in contractual form are eligible where their corporate governance mechanisms are equivalent to those applied to companies generally.

UCITS funds are a type of mutual fund that complies with European Union regulations and holds securities from throughout the region.

EU UCITS – Such UCITS will lose access to the UK on a passported basis and their ability to be sold into the UK will instead be subject to local rules which the UK may impose on such funds post-Brexit. Until those rules are put in place, however, the UK has created the Temporary Permissions Regime.

UCITS today can invest in a diverse range of financial instruments. This starts with investment in 'transferable securities' (broadly being listed shares and bonds) as well as: (i) shares of other regulated funds; (ii) cash, cash equivalents and money market instruments; and (iii) financial derivative instruments.

If you are an American citizen, even though you may have lived in the UK all your life, you need to choose investments with care. This is because you will need to declare your holdings to US authorities. And yes, some investments can result in penal tax charges. This article sets out to give you basic information.

Based on the current tax regime in accordance with article 103 of Law 4099/2012, as amended by Law 4389/2016, the act of a UCITS composition, the disposal and redemption of its shares are exempt from any tax, stamp duty, contribution, right or any other burden in favor of the State, legal entities under public law and ...

A UCITS must limit Ancillary Liquid Assets to bank deposits at sight, such as cash held in current accounts with a bank accessible at any time. Ancillary Liquid Assets held are limited to 20% of the net assets of a UCITS.

A Self-Managed Investment Company (SMIC) is an authorised UCITS investment company which has not appointed a management company and which complies with applicable provisions set down in the Regulations in relation to capital requirements and organisational structure.

Who does UCITS apply to? ›

The UCITS Directive is a detailed, harmonised framework for investment funds that can be sold to retail investors throughout the EU. This means that funds authorised in one Member State can be marketed in another Member State using a passporting mechanism.

A UCITS ETF is an exchange traded fund that follows a system of safety measures in accordance with UCITS regulations.

This rule, 20/35, is designed to ensure that a UCITS investment fund's maximum concentration of a single risk is 35%, with none of the other risks exceeding a maximum of 20%.

In summary, this says that a maximum of 10 per cent of a UCITS fund's net assets may be invested in securities from a single issuer, and that investments of more than 5 per cent with a single issuer may not make up more than 40 per cent of the whole portfolio. There are some exceptions to this rule.

The major difference is that unit trusts quote a bid price (to redeem) and an offer price (when you buy) with a spread that aims to ensure new or redeeming investors don't dilute the value of existing investors' units; OEICs only quote one price.

The non-UCITS QIF has no borrowing limit, whereas a UCITS can only borrow up to a maximum of 10 per cent of assets and even then only on a temporary basis. The QIF has no leverage limit, whereas in general in a UCITS fund the global exposure cannot exceed the Net Asset Value.

UCITS is a set of voluntary rules which many ETFs follow. ETFs which are UCITS compliant must follow minimum standards - that includes holding a diversified portfolio, publishing clear guidance on their charges and taking steps to safeguard investors' money.

The difference between the two is in the authorized share capital: the SICAF has fixed capital while the SICAV has variable capital. The latter takes the form of a Luxembourg limited liability company which has the objective to invest its funds in financial assets and/or transferable securities.

Ireland is widely recognised as one of the world's leading international fund centres for domiciling and servicing collective investment schemes. Irish UCITS funds are regulated by the Central Bank of Ireland (the “Central Bank”) pursuant to the various UCITS Directives, as implemented into Irish legislation.

The key common aspects of UCITS funds are that they must be open-ended and liquid. The flexibility of UCITS is evident in that they may be set up as a single fund or as an umbrella fund that is comprised of several ring-fenced sub-funds, each with a different investment objective and policy.

Can US investors buy UCITS? ›

While a UCITS fund may be marketed to European retail investors, a UCITS fund may not be marketed to U.S. retail investors without registration of the offering under the Securities Act, and registration of the UCITS fund under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

Unlike open-ended funds that are UCITS, investment trusts may borrow money in an attempt to enhance investment returns (known as gearing or leverage). UCITS funds are not permitted to gear for investment purposes.

The major difference is that unit trusts quote a bid price (to redeem) and an offer price (when you buy) with a spread that aims to ensure new or redeeming investors don't dilute the value of existing investors' units; OEICs only quote one price.

Regulation 40(5)(a) of the UCITS Regulations permits an umbrella investment company to acquire shares in a sister sub-fund by way of subscription or transfer for consideration. It is expected that, generally, such cross-investments will be processed as subscriptions, under normal dealing arrangements.

There is no Central Bank imposed minimum capital requirement for a UCITS investment manager.