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When you decide to invest in an investment fund, you may be faced with the question what (legal) structure to choose: SICAV, SICAF, FCP, SICAR, FIS …?

Finding your way is easier than it might seem at first glance.

Each investment fund has a domicile. This domicile determines the legislation applicable to the fund. The European investment fund sector is regulated by European Directives, so the legal framework is the same in all EU member countries. The choice of the fund can therefore be based on other considerations. If you opt for a fund established in one of the major European fund centers such as Luxembourg, you can be sure that the fund is supported by skilled and experienced service providers at all levels.

The second and more important question that must be answered is the following: Is the fund a UCITS (Undertaking for Collective Investment in Transferable Securities) or not? If it is, it complies with the relevant European regulation which means for you that the fund offers both a high level of risk diversification and high liquidity.

Non-UCITS funds are not legally obliged to ensure the same level of diversification or liquidity.

You will also have the choice between several legal structures.

Those that interest you most, as a private investor, are the SICAV and the FCP. The distinction is however more important for the fund initiator than for the investor.

As we wrote in our article entitled “How do I invest in a mutual fund, and how do I get out again, an investment company with variable capital (SICAV) issues shares, while the mutual fund (FCP) issues units. In terms of risk diversification and liquidity, however, there is no difference between these two legal structures.

The investment company with fixed capital (SICAF), however, generally does not allow its investors to exit the fund at any time, so its liquidity is significantly lower.

Specialized Fund (SIF) and venture capital companies (Sociétés d’investissement en capital à risque – SICAR) are less regulated and are reserved for well-informed and institutional investors who invest significant amounts.

Umbrella funds offer investors a high level of flexibility

An important point to consider is this: Will the profits made by the fund be reinvested in the fund or distributed to its investors in the form of dividends, i.e. does the fund issue capitalization or distribution shares? There are mutual funds that offer you the choice between these two types of units and shares. The impact is primarily of a fiscal nature: While dividends paid by the fund are usually taxable at the level of the investor, reinvested earnings increase the value of the fund’s units and shares, and the capital gain realised by the investor when selling his shares may be exempt from taxes if he holds the shares beyond a certain minimum period.

It is worthwhile finding out if the fund you have chosen is a “traditional” fund that manages one single portfolio of assets, or the sub-fund of a so-called “umbrella fund”. An umbrella fund is a single legal structure, under the roof of which a more or less large number of sub-funds or compartments are created. These sub-funds are distinct from each other and have their own investment policy, their own investors etc. Each sub-fund operates exactly like a traditional fund.

Being invested in a sub-fund of an umbrella fund can however be advantageous for you if you want to change your investment strategy. Most umbrella funds allow their investors to switch from one sub-fund (investing in European bonds for example) to another (investing for example in Japanese equities) at reduced cost.

As conventional funds manage only one portfolio of assets, you need to sell your units or shares and invest in another fund if you want to reallocate your investment. As we have seen in our article on the costs associated with an investment in an investment fund, this exercise can be costly.