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What is the 'Undertakings For The Collective Investment Of Transferable Securities - UCITS'

The Undertakings for the Collective Investment of Transferable Securities (UCITS) is a regulatory framework of the European Commission that creates a harmonized regime throughout Europe for the management and sale of mutual funds. UCITS funds can be registered in Europe and sold to investors worldwide using unified regulatory and investor protection requirements. UCITS fund providers who meet the standards are exempt from national regulation in individual European countries.

BREAKING DOWN 'Undertakings For The Collective Investment Of Transferable Securities - UCITS'

In everyday usage, a UCITS is a mutual fund based in the European Union. UCITS funds are perceived as safe and well-regulated investments and are popular in Europe, South America and Asia among investors who prefer not to invest in a single public limited company but rather among diversified unit trusts spread out within the European Union.

History of UCITS

The first UCITS Directive was adopted on Dec. 20, 1985, with a stated aim of facilitating cross-border offerings of investment funds to retail investors. In the early 1990s, proposals for modifications to the directive were made but never fully adopted. As such, there is no UCITS II. However, in 2002, following discussions among member countries, two new Directives were adopted. Directives 2001/107/EC and 2001/108/EC, together known as UCITS III, broadened the investment spectrum of UCITS funds and relaxed some restrictions for index funds.

UCITS IV, or Directive 2009/65/EC, brought about further technical changes and was adopted in July 2011. Finally, UCITS V, or Directive 2014/91/EU, which went into force in March 2016, aligns fund depositories' duties and responsibilities and fund managers' remuneration requirements with those of the Alternative Investment Fund Managers Directive (AIFMD).

Examples of UCITS Funds

Because they are seen as very safe and well-regulated, UCITS funds are very popular investments. According to the European Commission, they account for around 75% of all collective investments by small investors in Europe. Many mutual fund providers use an expression such as "UCITS-compliant" as part of their marketing strategy. While the funds are regulated in Europe, buyers from all over the world can invest in UCITS funds.

According to the Financial Times, following the introduction of UCITS V, the number of UCITS funds was reduced from 36,000 to 29,000, which is still a large amount. Many of the funds have grown very large. For example, as of Sept. 30, 2015, Standard Life's Global Absolute Return Strategies had $35.4 billion in assets. Overall, at the end of June 2016, UCITS funds represented €8.2 trillion, or approximately $9 trillion of assets.

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