Tpirot sza arch aust hires 070 87 A5246

UCITS

UCITS (Undertakings for Collective Investments in Transferable Securities) refers to a series of EU directives that regulate investment funds. The aim is to protect investors and strengthen the capital market. UCITS funds offer a high level of transparency and simple cross-border sales within the EEA.

The most important facts in brief:

  1. "UCITS" stands for "Undertakings for Collective Investments in Transferable Securities". The UCITS Directive regulates this form of investment fund.
  2. Funds that meet the UCITS requirements have UCITS in their name and are particularly diversified, liquid, and subject to strict reporting obligations.
  3. In Germany, the UCITS Directive is implemented by the German Capital Investment Code (KAGB) and compliance with the obligations is monitored by the Federal Financial Supervisory Authority (BaFin).

What is UCITS?

UCITS stands for "Undertakings for Collective Investments in Transferable Securities" and describes a specific set of investment funds that is typically characterized by its investment focus on transferable securities. It is regulated by the UCITS Directive and further EU directives that deal with the regulation of these investment funds. The aim of the directives is to protect investors and strengthen the cross-border capital market.

  • Investor protection: Investor protection is achieved, for example, by the fact that UCITS funds are particularly easy to sell and must invest the money in many different securities (so-called diversification).
  • Cross-border capital market: The UCITS Directive means that funds may be offered in all countries of the European Economic Area once they have been authorized in one member state. This has made the distribution of funds considerably easier, as the effort involved in authorizing funds has been significantly reduced.

EU directives are not directly applicable but must be transposed into national law by the member states. In Germany, the UCITS directives were implemented by the German Capital Investment Code (KAGB).

The UCITS Directive applies throughout the European Economic Area (EEA), which includes the EU member states as well as Norway, Iceland and Liechtenstein.

What are the characteristics of a UCITS fund?

A UCITS fund differs from other investment funds (alternative investment funds - AIFs) by its strict regulations with regard to diversification, liquidity, transparency and risk minimization. These characteristics ensure that UCITS funds are considered particularly trustworthy. The following characteristics are particularly relevant for UCITS funds:

  • European passport: One of the most important features of a UCITS fund is the so-called European passport. This passport allows the fund to be offered in all member states of the EEA after approval in one member state, without the need for separate approval in each individual country.
  • Diversification: A key requirement for UCITS funds is the diversification of the portfolio. The aim of diversification is to reduce the risk of loss. Diversification ensures that the fund is not overly dependent on the performance of individual investments. According to Section 206 KAGB, the so-called "5-10-40 rule" applies to UCITS funds. This rule states that positions that account for more than 5% of the fund assets - the so-called net asset value (NAV) - may not exceed 40% of the NAV in total. In addition, a maximum of 10% of the NAV may be invested in one issuer.
  • Liquidity: The liquidity of funds is key to enabling investors to sell their fund units quickly and cost-effectively. UCITS funds must ensure the liquidity of the funds. Liquidity is ensured, among other things, by the fact that financial companies undertake to buy exchange-traded funds (so-called ETFs) at the value of the securities contained in the funds (so-called market makers).
  • Minimization of issuer risk: Issuer risk is the risk that the company managing the fund becomes insolvent. The insolvency of the fund manager should not result in investors losing their money. In the case of UCITS funds, the issuer risk is minimized by the fact that the fund assets are held as separate assets. This means that the fund's assets are held separately from the issuer's assets. If the fund provider becomes insolvent, this does not affect the fund assets.
  • Restrictions on financial products: UCITS funds are intended to be the safest possible way for investors to invest their money. UCITS funds are therefore subject to strict regulations regarding the types of securities in which the money may be invested. Particularly, risky forms of investment such as the use of derivatives are only possible to a very limited extent and the short selling of securities is completely prohibited.
  • Transparency: Another key feature of a UCITS fund is the high transparency requirements. Fund managers are obliged to regularly publish information on the performance and composition of the portfolio. This includes standardized sales prospectuses as well as semi-annual and annual reports. These reports are intended to give investors the opportunity to obtain comprehensive and quick information about various funds in order to invest their money according to their own ideas.

How are UCITS funds monitored?

In Germany, the Federal Financial Supervisory Authority (BaFin) monitors compliance with the requirements of the KAGB

What does UCITS mean in the name of an ETF?

If the name of an ETF says UCITS, this means that the ETF complies with the investor protection requirements, including those relating to transparency, liquidity, diversification, and the permitted securities, see Section 4 (2) KAGB in conjunction with the BaFin Fund Category Guideline. It is important to note that the statement "UCITS suitable" in a sales pitch means something different. The statement "UCITS suitable" is merely an assertion that the UCITS requirements are complied with without compliance being checked by BaFin or another European supervisory authority.

This article provides a non-binding overview of the subject area covered and does not replace legal advice. For further information or personal advice, please do not hesitate to contact us: