Facts about funds
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What funds can invest in
What assets (ie. bonds, shares, cash, property) your fund can invest in, and in what proportion, will depend on whether your fund is categorised as UCITS or a NURS. Both categories are subject to regulations to ensure that funds are well diversified as regards market risk and counterparty risk. Those for UCITS are more strict.
Find out more about UCITS and NURS and how funds are structured
What can UCITS invest in?
UCITS funds can invest in a wide range of assets, including shares, corporate and government bonds, units in other UCITS, other types of approved securities and derivatives. They can place deposits with banks and invest in money market instruments. They cannot borrow other than on a temporary basis and then up to a maximum of 10% of the fund’s value. Up to 10% of the fund’s value can be invested in unapproved securities.
What can a NURS invest in?
A NURS can invest in the same range of assets as UCITS, but they can also invest in real estate, gold and units of unregulated funds. Up to 20% of the fund's value can be invested in unapproved securities. Property funds can borrow up to 20% on a permanent basis.
How do I know what my fund is invested in?
The fund documents will tell you which particular assets the fund invests or may invest in. The fund may specify that it will invest predominantly in a particular type of asset, and it may operate within tighter limits than those required by regulation. One of the responsibilities of the trustee or depositary is to ensure that the fund is invested in accordance with regulatory requirements, and the fund’s documents.
How much can funds invest in any one asset?
The basic rule for UCITS is called the ‘5/10/40’ rule. A UCITS fund may invest no more than 5% of its value in approved securities or money market instruments issued by any one body. This limit can be increased to 10% provided that the total value of any holdings between 5% and 10% does not exceed 40% of the fund. In other words, a UCITS can invest in an absolute minimum of 16 assets: four holdings of up to 10% each plus 12 holdings of up to 5% each. In practice, UCITS often hold a larger number of assets.
NURS do not have to comply with the '5/10/40' rule. Instead, they must simply ensure that they do not invest more than 10% in any one issuer. In practice, NURS generally invest in a large number of assets.
Limits
There are limits for other types of holdings for funds. For the most common assets, the limits are as follows:
| UCITS | NURS | |
| Deposits | 20% with any one bank | 20% with any one bank |
| Other funds | 20% in any one fund | 35% in any one fund |
| Government Bonds | Up to 35% in any one bond issue provided the rest of the fund is invested in other types of assets; or a minimum of six issues if the fund is over 35% invested in Government Bonds | Up to 35% in any one bond issue provided the rest of the fund is invested in other types of assets; or a minimum of six issues if the fund is over 35% invested in Government Bonds |
| Derivatives | Up to 10% of the fund’s value exposed to any one counterparty bank | Up to 10% of the fund’s value exposed to any one counterparty bank |
UCITS funds are also subject to rules on how much of a particular asset they can own. The percentage limits relate to the value of the asset rather than the value of the fund. For example, a maximum of:
- 20% of the voting shares of a company.
- 10% of the bonds issued by a company.
- 25% of the value of another fund.
For more details read ‘Authorised Funds: A Regulatory Guide’