ICVC
Encyclopedia
An Open-ended investment company (abbreviated to OEIC, pronounced "oik") or Investment Company with Variable Capital (or ICVC) is a type of open-ended collective investment
formed as a corporation
under the Open-Ended Investment Company Regulations 2001 in the United Kingdom
. The terms "OEIC" and "ICVC" are used interchangeably with different investment managers favouring one over the other. In the UK
OEICs are the preferred legal form of new open-ended investment over the older unit trust
.
As an open-ended company the manager must create shares when money is invested and redeem shares as requested by shareholders. As with other collective investments ICVCs main function is to make money for the shareholders. This is achieved via investing in different asset classes such as equities, fixed interest
investments and property
. By using economies of scale
they facilitate access to professional investment management
for small investors.
OEICs were developed to be similar to European SICAV
s and US mutual funds.
s were favoured legal vehicles for investment, in the 1990s it was felt that the UK government should allow a corporate form that could repurchase its own shares without the standard restrictions in the Companies Act
. The Open-Ended Investment Companies (Investment Companies with Variable Capital) Regulations 1996 first introduced the OEIC, on 11 November 1996 and in force on 6 January 1997. They were enacted under the European Communities Act 1972
section 2(1) and were therefore known as the "ECA Regulations". The Securities and Investment Board (predecessor to the FSA
) regulations, the Financial Services (Open-Ended Investment Companies) Regulations 1997 were approved by the SIB Board on 16 January 1997 and came into effect as from that date. The first commercial OEIC was launched by Threadneedle Asset Management in 1997.
These regulations only allow investment in transferable securities (e.g. listed securities, other collective investment scheme
s or certificates of deposit). This ensured that ICVCs fell within the scope of the Undertakings for Collective Investment in Transferable Securities Directives (UCITS).
With the advent of the a single regulator, the FSA, the previous regulations were replaced by the Open-Ended Investment Companies Regulations 2001 under the Financial Services and Markets Act 2000
section 262. These changes brought the formation of ICVCs under control of the FSA and removed the automatic inclusion of an ICVC under the UCITS directive allowing scope for non-UCITS investments (e.g. money market funds, property funds and funds of funds). The changes ensure a level playing field for unit trust
s and ICVCs.
, an ICVC can act as an umbrella scheme holding various sub-funds each with their own investment goals. For example one ICVC may hold a subfund investing called UK Smaller Companies and another subfund called UK Equity Income. Each subfund has its own investment aims and is held separately from other subfunds within the same ICVC. This has some cost savings for the investment manager.
. Each time money is invested new shares are created to match the prevailing share price; each time shares are redeemed the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets. ICVCs may be single-priced (there is one price at which shares may be bought or sold) or dual-priced, in which case there will be a buying price and a selling price, with the difference between the two being the bid-offer spread
.
Collective investment scheme
A collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
formed as a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
under the Open-Ended Investment Company Regulations 2001 in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
. The terms "OEIC" and "ICVC" are used interchangeably with different investment managers favouring one over the other. In the UK
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
OEICs are the preferred legal form of new open-ended investment over the older unit trust
Unit trust
A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....
.
As an open-ended company the manager must create shares when money is invested and redeem shares as requested by shareholders. As with other collective investments ICVCs main function is to make money for the shareholders. This is achieved via investing in different asset classes such as equities, fixed interest
Fixed interest
A fixed interest rate loan is a loan where the interest rate doesn't fluctuate during the fixed rate period of the loan. This allows the borrower to accurately predict their future payments...
investments and property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
. By using economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
they facilitate access to professional investment management
Investment management
Investment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
for small investors.
OEICs were developed to be similar to European SICAV
SICAV
A SICAV is an open-ended collective investment scheme common in Western Europe, especially Luxembourg, Switzerland, Italy, Spain, Belgium and France...
s and US mutual funds.
History
While historically, unit trustUnit trust
A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....
s were favoured legal vehicles for investment, in the 1990s it was felt that the UK government should allow a corporate form that could repurchase its own shares without the standard restrictions in the Companies Act
Companies Act
Companies Act is a stock short title used for legislation in the United Kingdom and South Africa relating to company law....
. The Open-Ended Investment Companies (Investment Companies with Variable Capital) Regulations 1996 first introduced the OEIC, on 11 November 1996 and in force on 6 January 1997. They were enacted under the European Communities Act 1972
European Communities Act 1972
European Communities Act 1972 can refer to:*European Communities Act 1972 * European Communities Act 1972...
section 2(1) and were therefore known as the "ECA Regulations". The Securities and Investment Board (predecessor to the FSA
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
) regulations, the Financial Services (Open-Ended Investment Companies) Regulations 1997 were approved by the SIB Board on 16 January 1997 and came into effect as from that date. The first commercial OEIC was launched by Threadneedle Asset Management in 1997.
These regulations only allow investment in transferable securities (e.g. listed securities, other collective investment scheme
Collective investment scheme
A collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
s or certificates of deposit). This ensured that ICVCs fell within the scope of the Undertakings for Collective Investment in Transferable Securities Directives (UCITS).
With the advent of the a single regulator, the FSA, the previous regulations were replaced by the Open-Ended Investment Companies Regulations 2001 under the Financial Services and Markets Act 2000
Financial Services and Markets Act 2000
The Financial Services and Markets Act 2000 is an Act of the Parliament of the United Kingdom that created the Financial Services Authority as a regulator for insurance, investment business and banking.-Outline:...
section 262. These changes brought the formation of ICVCs under control of the FSA and removed the automatic inclusion of an ICVC under the UCITS directive allowing scope for non-UCITS investments (e.g. money market funds, property funds and funds of funds). The changes ensure a level playing field for unit trust
Unit trust
A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....
s and ICVCs.
Legal Structure
- A board of directorsBoard of directorsA board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
usually headed by the Authorised Corporate Director (ACD) - An ACD is a FSAFinancial Services AuthorityThe Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
authorised firm that assumes full control of the board. The board's responsibilities include: dealing with the day to day operation of the company, managing the company's investments, buying and selling the ICVC's shares on demand, and ensuring accurate pricing of shares at net asset value. - Depositary - The depositary is a firm (usually a bank) authorised by the FSA, independent of the ICVC and of the directors of the ICVC. The depositary holds legal title to the ICVC investments and is responsible for their safe custody. The depositary can appoint sub-custodians to take custody of the assets but will remain ultimately responsible. The depositary has responsibility for taking reasonable care to ensure the ACD complies with the key regulatory requirements.
- The shareholders have the rights to the ICVC's assets.
Umbrella fund
Unlike a unit trustUnit trust
A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....
, an ICVC can act as an umbrella scheme holding various sub-funds each with their own investment goals. For example one ICVC may hold a subfund investing called UK Smaller Companies and another subfund called UK Equity Income. Each subfund has its own investment aims and is held separately from other subfunds within the same ICVC. This has some cost savings for the investment manager.
Open-Ended
ICVCs are open-ended; the fund is equitably divided into shares which vary in price in direct proportion to the variation in value of the fund's net asset valueNet asset value
Net asset value is a term used to describe the value of an entity's assets less the value of its liabilities. The term is most commonly used in relation to open-ended or mutual funds because shares of such funds registered with the U.S. Securities and Exchange Commission are redeemed at their net...
. Each time money is invested new shares are created to match the prevailing share price; each time shares are redeemed the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets. ICVCs may be single-priced (there is one price at which shares may be bought or sold) or dual-priced, in which case there will be a buying price and a selling price, with the difference between the two being the bid-offer spread
Bid-offer spread
The bid–offer spread for securities is the difference between the prices quoted for an immediate sale and an immediate purchase...
.
See also
- UK company law
- Collective investment schemeCollective investment schemeA collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
s - Unit trustUnit trustA unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....
s - Investment trustInvestment trustAn Investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies....
s