UCITS Funds: Providing Greater Investor Protection

One of the cornerstones of the European Union’s UCITS (Undertaking in Collective Investments in Transferable Securities) directives governing investment funds is the concept of investor protection.

Built up by a series of laws that have come into effect between 1988 and July 2011, the UCITS regime aims to provide individuals with a secure environment for fund investing.

These funds must meet the standard UCITS requirements for it to be sold to the public in any EU country. The UCITS standards of investor protection are the most important factor in their development over the last two decades, therefore, it’s worth taking a closer look at various important aspects of investor protection contained in the UCITS framework:

Eligible assets

Since the UCITS directive defines eligible assets in general terms, European regulators have issued additional guidelines to ensure there is a common understanding of what kind of assets may be acquired by a UCITS fund.


The vast range of UCITS funds on the market offers investors diversification in terms of the assets in which funds invest, the economic or business sectors they cover, and the countries or regions where investments are located.


One of the most important characteristics of UCITS is liquidity. This means that investors wishing to sell their holdings in a fund – whether because they believe the value may fall or for any other reason – can do so without delay.


For investors to have confidence in a UCITS fund, they must be able to trust the valuations it uses for individual assets and for the Net Asset Value (NAV). Investors buy shares or units in a UCITS without knowing the exact price, which is only established after the deal has been placed.

Risk management

The risk management procedure for a UCITS fund must be appropriate, fulfill specific requirements, be described in detail, and approved by the CSSF.

Oversight and safekeeping

There is a broad range of supervision, checks and balances at different levels to ensure that the interests of investors are protected.

First, management and investment companies of UCITS are responsible for the oversight of the fund’s activities and the safeguarding of investors’ interests. They must have a supervisory and governance framework for taking decisions, hold regular board meetings, and appoint officers responsible for the operation of the fund. They must have and employ the resources and procedures necessary for the proper conduct of its activities.

Another important role belongs to the depositary. The UCITS funds company must appoint a Central Bank-approved depositary for the safekeeping of their assets and a Central Bank-approved administrator which is responsible for maintaining the books and records of the fund, calculating the net asset value of the fund and maintaining the unit holder register.

Fund information

Readily accessible, comprehensible and up-to-date information is one of the best kind of protection for investors. It can prevent them buying a fund that is not appropriate for their needs or risk profile, and alert them if the fund is not being run in the way it has promised.

According to the UCITS rules, the fund must publish a prospectus, annual and semi-annual reports, and a Key Investor Information Document (KIID).

  • The fund prospectus provides comprehensive details of the fund’s investment goals and strategies, and of the inherent risks, and may contain past performance information if applicable. It will also state how the fund is valued and the terms and conditions for buying or selling shares or units.
  • For regular investors, the KIID should provide enough information for them to understand whether or not the fund in question is suitable for them. It contains information about how a fund operates, what they invest in, the level of risk of its investments, a history of its performance, and details of the regular costs that will be deducted from the fund’s assets. The KIID should include Synthetic Risk and Reward Indicator to show its targeted risk/reward profile on a scale between 1 (the lowest level of risk and potential reward) and 7 (the highest level). The KIID should also discuss non-performance risks such as exchange rate fluctuations that might affect investor returns.
  • Aside from that, clients will receive an annual report that provides details of its investments and performance and includes commentary from the fund’s manager about developments over the financial year. The report provides investors with the information to help them judge whether the fund is being managed in the way they have been promised and whether it is still appropriate for their investment needs.

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