UCITS

UCITS - Undertakings for Collective Investment in Transferable Securities - is the unwieldy name given by the European Union EU to pan-European investment funds.

The objective of the original UCITS directive adopted in 1985 was to allow for open-ended funds similar to OEICS investing in transferable securities to have a single regulatory regime across the EU. The idea behind this proposed legislative uniformity was to allow funds authorised in one EU country to be available to be sold to the public elsewhere in the EU without further authorisation so furthering the goal of a single market for financial services in Europe.

Unfortunately good intentions foundered on the obstacles created by the individual marketing rules in the various member states. However the EU has not given up on UCITS and the rules were amended again in August 2003.

It has been claimed that a better integrated European market for investment funds would provide three kinds of benefits it would increase choice of products allow economies of scale and intensify competition for the benefit of private investors.

The UCITS Directive laid out certain minimum requirements for funds prohibiting investment in certain types of riskier assets and setting out maximum levels of investment in the paper of one issuer for example. Since 1985 the rules have been tweaked slightly. The range of financial instruments that may be invested in via UCITS includes

• Transferable Securities and Money market instruments.
• Bank Deposits.
• Units of other investment funds.
• Financial derivative instruments.
• Index tracking funds.

The definition of "transferable securities" is defined as

• shares in companies and other securities equivalent to shares in companies
• bonds and other forms of securitised debt and
• any other negotiable securities which carry the right to acquire any such transferable securities by subscription or exchange.

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2009-02-17 00:00:00 © Moneyextra.com