Our expert Irish and Luxembourg lawyers advise clients on a range of UCITS specific requirements. Marketed and sold to retail investors globally, UCITS can invest in a diverse range of financial instruments. As the rules for permitted asset classes and governance requirements continue to evolve, UCITS continue to be a popular investment management product.
UCITS are open-ended collective investment schemes established and authorised pursuant to EU law, as implemented in the member states of the EU. Perceived as safe and well-regulated investments, once authorised, UCITS can be marketed and sold to retail investors globally. UCITS can invest in a diverse range of financial instruments. As the rules for permitted asset classes and governance requirements continue to evolve, UCITS continue to be a popular investment management product. Critically, by using derivatives, UCITS can generate leverage and achieve synthetic short exposure.
Our Irish and Luxembourg lawyers advise clients on the following UCITS specific requirements:
- UCITS must be able to offer redemptions at least twice a month, i.e. fortnightly. A 10% fund level gate is permitted. Redemption proceeds must be received within 14 calendar days / 10 business days of the redemption deadline.
- At least 90% of assets must be in liquid (UCITS eligible) instruments (such as listed equities, fixed income, money market instruments, regulated funds and derivatives on eligible assets or financial indices). No direct short-selling is permitted. Direct exposure to real estate and commodities is not permitted.
- 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. There are certain exceptions for government issued securities and for index tracking funds.
- Temporary borrowing is limited to 10% and not permitted for investment purposes. A general leverage limit of 100% is applied (although use of value-at-risk (“VaR”) to measure global exposure gives significant flexibility in this regard).
- Regulated depositaries, administrators and auditors provide independence in key support and oversight functions. No minimum investment level is applied under UCITS regulation (although funds may fix levels themselves); no investor eligibility criteria are applied.
- UCITS can be established as investment companies with variable capital (SICAVs), investment companies with fixed capital (SICAFs) or as common contractual funds (CCFs) in Luxembourg or as investment companies, unit trusts, common contractual funds (CCFs or Irish Collective Asset-management Vehicles (ICAVs) in Ireland. UCITS can operate as a standalone fund or as an umbrella fund, with multiple sub-funds with segregation of liability assets and liabilities at sub-fund level.
FAQs
The term “undertaking for collective investment in transferable securities” (UCITS) should not require much explanation, it speaks for itself: It is an undertaking for collective investment (or “investment fund”) which invests in securities, i.e. in stocks, bonds, stocks and bonds, short term treasury instruments and ...
What is the 10 rule of UCITS? ›
Regulation 49 (1) (a) of the European Communities (UCITS) Regulations 2003 provides that a UCITS may invest no more than 10% of its assets in transferable securities or money market instruments issued by the same body provided that the total value held in the issuing bodies in each of which it invests more than 5% of ...
What are the disadvantages of UCITS? ›
Costs: UCITS funds can have higher costs due to compliance and regulatory reporting requirements. Investment restrictions: Strict investment rules might limit the fund's ability to take advantage of certain market opportunities.
What is the 5 40 rule for UCITS? ›
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 ...
Can US citizens 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”).
How to tell if a fund is UCITS? ›
A UCITS must invest its funds in transferable securities and other liquid assets. This includes transferable securities admitted or dealt on a regulated market, investment funds, financial derivative instruments, cash and specific money market instruments. Uncovered short sales and borrowings are not permitted.
What is the difference between UCITS and ETFs? ›
For ETFs using derivatives, exposure should be covered with collateral valued at 90% of NAV and meet minimum risk management standards. UCITS funds cannot use leverage other than on a temporary basis and up to a maximum of 10% of their NAV.
What is the legal structure of a UCITS fund? ›
UCITS are open-ended collective investment schemes established and authorised pursuant to EU law, as implemented in the member states of the EU. Perceived as safe and well-regulated investments, once authorised, UCITS can be marketed and sold to retail investors globally.
Who invests in UCITS? ›
Any person may invest in a UCITS fund. UCITS funds are a highly popular form of investment, especially for European retail investors. While they may be offered worldwide, they're especially popular with Europeans making smaller investments.
Is UCITS a legal form? ›
Introduction to Undertakings for Collective Investment in Transferable Securities (UCITS) UCITS established in Ireland are authorised under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (“the UCITS Regulations”).
Index Returns. The Eurekahedge UCITS Hedge Fund Index (Bloomberg Ticker - EHFI547) is an equally weighted index of 592 constituent funds.
What is the cash limit for UCITS? ›
A UCITS shall invest no more than: (a) 5 % of its assets in transferable securities or money market instruments issued by the same body; or (b) 20 % of its assets in deposits made with the same body. This rule in UCITS limits the amount of cash a fund can hold to 20% of the net assets of the fund.
What is the 25% rule for UCITS? ›
A UCITS may acquire no more than 25% of the units/shares of the underlying UCITS or UCI (or the aggregate amount invested in one or more sub-funds of an umbrella UCITS). 2. Such UCITS or UCI cannot itself invest more than 10% in other UCITS or UCIs.
What assets are eligible for UCITS? ›
Under the UCITS Directive, a UCITS may only invest in specific asset classes, including certain transferable securities, money market instruments, other investment funds, bank deposits and financial derivative instruments.
Are UCITS open or closed? ›
The key common aspects of UCITS funds are that they must be open-ended and liquid.
What is the difference between UCI and UCITS? ›
UCI stands for Undertaking for Collective Investments. UCIs are regulated Luxembourg domestic retail investment funds, which are not governed by EU Directives, but by Luxembourg laws only. Unlike UCITS which can only invest in liquid transferable securities, a UCI can invest in non- listed securities, real estate, etc.
What is the difference between UCITS and non-UCITS? ›
What Is the Difference Between UCITS and Non-UCITS? Non-UTICS funds do not comply with UCITS guidelines. They are likely not open-ended and liquid, one of the more significant requirements for a fund to be UCITS compliant.
What is the difference between a mutual fund and a UCITS fund? ›
UCITS funds are a type of mutual fund that complies with European Union regulations and holds securities from throughout the region.
