Facts about funds
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Fund structures and definitions
Among the thousands of funds you can choose from, you will find UK authorised funds and offshore funds. As the diagram below shows, for UK funds there are two possible legal structures - unit trusts and Open-Ended Investment Companies (OEICs). They can be categorised either as a UCITS or a NURS. Offshore funds can be promoted and sold to UK retail investors if they are recognised by the Financial Services Authority. These will be UCITS or NURS equivalent.
What is an authorised unit trust?
Does it matter whether I choose a unit trust or an OEIC?
Other types of investment products
What is an authorised unit trust?
A unit trust is a fund in which the fund assets (known as the scheme property) are held in trust for investors by the trustee who legally owns of the scheme property (ie. looks after the fund's assets). The investors have a direct beneficial economic interest in the scheme property and are the owners of the fund units. An authorised unit trust (AUT) is constituted by a Trust Deed, entered into by the manager and the trustee, who must be completely independent of each other. The trustee has a duty of oversight over the activities of the manager. The manager operates the scheme.
Unit trusts may be structured as single funds or as umbrella funds with several sub-funds. The sub-funds are separately managed, charged, accounted for and assessed for tax.
What is an OEIC (Open-Ended Investment Company)?
OEICs are funds structured as companies. Another name for them is Investment Company with Variable Capital (ICVCs). OEICs normally have one director which is itself an authorised company and is referred to as the Authorised Corporate Director (ACD). Although OEICs are allowed to have other directors, in practice, they usually have only one director, the ACD.
The ACD is the manager of the fund. An independent depositary safeguards the fund’s assets and oversees the operation of the fund by the manager. The investors in an OEIC have an indirect beneficial interest in the fund assets through their shareholdings in the OEIC.
OEICs may be structured as single funds or as umbrella funds with several sub-funds. The sub-funds are separately managed, charged, accounted for and assessed for tax.
Does it matter whether I choose a unit trust or an OEIC?
No. The regulations governing unit trusts and OEICs are identical except for a small number of technical areas. The manager of a unit trust and the ACD of an OEIC are subject to identical requirements and obligations, as are trustees and depositaries. Indeed, in practice, the same companies act both as trustee and depositary, and a number of managers run both unit trusts and OEICs. Importantly, the same level of investor protection applies to both types of funds.
What is a UCITS?
UCITS are investment funds that have been established in accordance with European Law. A fund that has been authorised in one EU Member State can be freely marketed in any other Member State.
There are rules on what UCITS can invest in, how much they can borrow and how much of the fund can be exposed to any one counterparty.
Read more about what UCITS funds can invest in
What is a NURS?
Non-UCITS Retail Schemes (NURS) are UK funds that do not comply with all the UCITS rules and, therefore, cannot be promoted across the EU. They can, however, be sold to UK retail investors. NURS can invest in a wider range of eligible investments than UCITS.
Read more about what a NURS fund can invest in
What are offshore funds?
You can find out more about offshore funds here
Other types of investment products
There are other types of funds you can invest in, which have a different structure and are regulated differently to UK authorised funds (units trusts and OEICs).