UCITS are open-ended undertaking for collective investment in transferable securities. (UCITS) is an undertaking the sole object of which is the collective investment in transferable securities and/or in other liquid financial assets of capital raised from the public, and which operates on the principle of risk-spreading and the units of which are, at the request of holders, redeemed, directly or indirectly, out of this undertaking’s assets. In plain terms, UCITS are open-ended collective funds raised from investors. These joint funds are being managed by a Management Company and are being safe kept by a Custodian. The funds (assets) of a UCITS are divided into equal units which belong in their entirety to the unit holders depending on the units that every unit holder possesses. Unit holders have a share in profits as well as in loss and costs that may arise while managing and investing UCITS’s assets.
- The net value of a UCITS unit is calculated upon the value of the UCITS’s assets minus the liabilities and expenses divided by number of the units in circulation. Some of the UCITS liabilities and expenses include the remuneration of the Management Company, the Custodian’s remuneration and other expenses and costs arising from the management and administration of a UCITS;
- The price at which an investor will purchase a UCITS unit is equal to its Issue Price (Issue price = net unit value + issue’s commission percentage);
- The price at which an investor will redeem his/hers units is equal to the unit’s redemption price (Redemption Price = net unit value – Redemption Commission Percentage);
- The Issue price and the Redemption price of a UCITS unit is possible to exceed or to fall short of the net unit value respectively, calculated in accordance with the issue’s and Redemption’s commission percentage respectively, according to the UCITS Regulation, Status or Articles of Incorporation.
Risks
From the point of view of investors, UCITS are subject to financial risks and to certain operational risks that can materialize into capital losses or poor investment performance.
Among financial risks, market risk is typically referred to as the liability to fluctuations in the market value of the securities invested by the funds, which may vary over time reflecting different market conditions.
When factors other than market risk become relevant, the overall financial exposure of an investment fund may depend also on additional specific risk drivers that emerge only at the aggregate portfolio level. This is the case, for instance, for concentration risk or for certain aspects of liquidity risk, when liquidity is understood as the ability of a UCITS to meet, at a reasonable cost, its obligations (redemptions or debt reimbursement) as they become due.
From the point of view of UCITS investors, operational risks are attached to the different features and quality of the trading, settlement and valuation procedures operated by the Companies, which may increase the chances of losses due to human or technical errors.
There are different types of UCITS and every type of UCITS has its own risk profile. So it is particularly important that you are fully aware of the risks involved before acquiring any such product. Such information can be found, for example, in the relevant product literature (i.e. UCITS’s prospectus etc).
In summary the dealing in UCITS may involve risks, depending on the type of UCITS, including but not limited to the following: credit risk, legal risk, operational risk, market risk, country risk, liquidity risk, settlement risk, exchange risk, interest-rate risk.
