UCITS (Undertakings for Collective Investment in Transferable Securities) offer savers, investors, and treasurers the opportunity to acquire portfolios of financial instruments without having to manage them directly.
These products are mandatorily managed by Portfolio Management Companies (PMCs), approved in France by the Financial Markets Authority (AMF). Open-ended Investment Companies (SICAVs) and Mutual Funds (FCPs) are the two main legal forms that UCITS can take. These have some specific characteristics which we will explore in this article.
SICAV: A Corporate Structure with Voting Rights
A SICAV is an open-ended investment company. It issues shares whose value is determined by the net asset value of the fund. As shareholders, investors have voting rights at general meetings, allowing them to influence the fund's management. This structure offers clear governance, with a board of directors overseeing administration, while asset management is handled by a Portfolio Management Company.
FCP: Co-ownership of Assets without Voting Rights
Unlike SICAVs, an FCP has no legal personality. It functions as a co-ownership of assets, where investors hold units proportional to their investment. These units can be sold based on the net asset value of the fund, but unitholders have no voting rights and cannot influence the fund's management. The administration of the FCP is also provided by a management company, but without the direct involvement of investors.
Main Differences Between SICAVs and FCPs
SICAVs and FCPs differ primarily in their legal structure. A SICAV is a company, while an FCP is a co-ownership of assets without legal personality. In terms of management, a SICAV involves participative governance with voting rights for shareholders, unlike FCPs where investors are completely passive. Both types of funds are managed by a Portfolio Management Company, but associated fees may vary, with SICAVs sometimes being more expensive.
Management and Structure: Commonalities and Differences
Whether an FCP or a SICAV, these funds are both managed by management companies distinct from their own structures. Additionally, they can be diversified, including different types of assets, or specialized in a specific sector. The major difference lies in how investors interact with these funds. SICAV shareholders play an active role in governance through general meetings, while FCP investors have no right to participate in management.
Taxation and Fees: Similarities and Impact on Returns
From a tax perspective, FCPs and SICAVs are subject to the same regime: capital gains and income are generally taxed at a flat rate of 30% (Flat Tax), comprising both income tax and social contributions. In terms of fees, both types of funds may charge entry fees, management fees, or performance fees. However, FCP fees are generally slightly lower than those of SICAVs, the latter having additional costs related to their legal structure.
Conclusion: How to Choose Between FCP and SICAV?
The choice between an FCP and a SICAV mainly depends on your willingness to get involved in governance. If you want an active role in governance through exercising your voting rights at General Meetings, a SICAV will be more suitable. Conversely, if you prefer delegated management without having to be involved in day-to-day decisions, an FCP will be a perfectly adequate option. Whatever your choice, UCITS represent an excellent capital allocation tool, whether for optimizing your cash management with money market funds or for investing and speculating via equity or bond funds.
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