investment

UCITS, what is it?

This abbreviation for Undertaking for Collective Investment in Transferable Securities seems to be difficult to pronounce, of course. But it is a term that designates a package that can provide a myriad of benefits for individuals.

But what is a UCITS in reality? Are there any particular benefits for investors? How to benefit from it? Are there several types of UCITS? Here are the answers to your questions !

What is a UCITS?

As mentioned above, UCITS is the abbreviation of “Organization for Collective Investment in Transferable Securities”. In other words, it is a financial organization which aims to give their members the opportunity to make an investment in the financial markets. To do this, you will have to subscribe to a UCITS. Then you could invest in a share of the stock, or the fund to be precise. On the other hand, it is not you, as an investor, who will take care of the management of the fund. She will be responsible for managing financial assets.

To look at it from another angle, a UCITS is none other than collective management with the objective of optimizing the performance of financial markets. However, the organization or company responsible for managing collective assets offers services which will then be invoiced. The fees then concern the management itself, entry and exit, and outperformance fees.

In short, the operation of a UCITS is similar to that of an investment mechanism in which you pay for the services offered by an expert and then optimize the returns on your investment. This represents an essential point to evaluate before making the decision to invest in a UCITS.

​What are the different types of UCITS?

Generally speaking, there are two types of UCITS: SICAVs and FCPs. Respectively, these two terms mean Open-Ended Investment Companies and Mutual Funds. So what would be the difference between a SICAV and a FCP? In reality, it is only a question of legal form. The SICAV is, however, subject to a minimum capital of 7.5 million euros, compared to 40,000 euros for a FCP.

There is also a big difference between the names of shareholders in these two types of UCITS. Those of a SICAV represent the shareholders. In the case of a mutual fund, they are called unit holders.

​UCITS: current regulations

Undertakings for Collective Investment in Transferable Securities are subject to regulations and it is the Financial Markets Authority (AMF) which imposes the regulations.

In other words, even before creating investment funds, UCITS must establish a list of financial products in which shareholders could invest. Once the fund is created, you can no longer modify or make updates to the products in question. Let’s take an example ! If a UCITS created a fund to be able to invest in European bonds, it would be impossible to make investments in other emerging markets.

This regulation also applies to the number of shares of an investment fund. It is for this reason that we are seeing today a particular enthusiasm for certain investment funds. For your information, if a fund has few units, it will be more popular. On the other hand, a fund with a high number of shares will gain less popularity and profits.

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​UCITS: what supports?

In terms of holding media, UCITS can indeed be nestled in several media. In particular securities accounts, life insurance, or even PEA or Stock Savings Plans. In fact, the choice of holding medium will depend largely on the composition of the UCITS. Remember that the important thing is that before registering for a UCITS, it is necessary to carefully assess the support for which the fund is eligible.

​What are the different categories of UCITS?

Although there are only two types of UCITS, be aware that they can be divided into several categories. In general, it is the category of financial products in which the investments are made which determines that of a UCITS. And all things considered, you can choose between 6 categories of UCITS, including mandatory UCITS, money market UCITS, formula UCITS, alternative UCITS, equity UCITS, and diversified UCITS.

​What advantages do UCITS offer?

Diversifying your portfolio

If you are an individual who wants to minimize your expenses to diversify your portfolio, investing in a UCITS is the ideal choice to make. This will be an opportunity for you to invest in the different financial products offered by the organization. On the other hand, avoid investing in the stock markets. For good reason, direct bonds require a colossal minimum investment. In other words, the minimum investment in certain stocks represents the cost of the maximum investment in other stocks.

The advice we could give you would then be to buy a share from an investor to be able to better position yourself in relation to the assets. As a result, it will be easier for you to benefit from your investment, but also to invest with a smaller amount.

Professional management of your investment

UCITS also allow you to benefit from the intervention of an expert or professional for the management of funds and investments. This will subsequently allow you to avoid heavy tasks relating to the management of your investment.

For example, you will not need to rack your brains over the choice of financial assets, nor about the appropriate time to sell or buy assets. For beginners, this would be an opportunity to invest in the stock market without having the slightest knowledge of the market.

​And are there any disadvantages?

Performance is not guaranteed in UCITS. On the other hand, it is possible to achieve a certain performance provided you invest in a formula fund and lock in your gains over several years.

Funds are also subject to risks. Which could lead to a deficit or a profit, just like the upward and downward fluctuation of financial products.

Otherwise, although the investment is managed by a professional, this does not exclude the fact that it would be preserved in the event of a bear market. Also, this does not mean that your assets will necessarily outperform even if the economic and stock market context is favorable to you.

That said, it is always necessary to check and evaluate all the important criteria before subscribing and investing in a UCITS.