articles | 13 December 2019

Undertakings for Collective Investment in Transferable Securities (UCITS)

UCITS are established and authorised under a harmonised EU legal framework, and are internationally regarded as one of the most effective asset management tools available, thanks to their strong regulation resulting in high levels of investor protection.

The availability of funds in Cyprus has grown steadily since the country’s accession to the European Union (EU) in 2004, which resulted in the harmonisation with the acquis communitaire and EU Directives regulating funds. The transposition of the UCITS IV Directive in 2012, through the enactment of the Open-Ended Undertakings for Collective Investment Law of 2012 (UCI Law), which was further amended in April 2016 with the transposition of UCITS V, are key milestones for the Cypriot funds industry – and interest

in Cyprus has been on a steady upward trajectory ever since. The Cyprus Securities and Exchange Commission (CySEC) regulates and supervises Cypriot UCITS and Management Companies, and to date four prominent UCITS Management Companies have set up on the island, and eight UCITS funds have been established, which include one umbrella fund with a total of 17 sub-funds. Foreign UCITS are also widely marketed in Cyprus, including UCITS whose promoters are international financial institutions such as JP Morgan, UBS and Julius Baer. With a large number of UCITS also being sold outside of Europe, Cyprus has good prospects of leveraging its strategic geographical location to establish and market UCITS to the Middle East, Russia and Asia.


UCITS Legal Forms

  • Variable Capital Investment Company (VCIC)
  • Common Fund (CF)

Master-Feeder Funds

The Master-Feeder structure allows the creation of a structure investing its portfolio into another UCITS, even if located in another EU country. Streamlining the efficiency of the fragmented European industry of investment funds and the search for economies of scale are the driving rationale for the introduction of this investment rule. In a Master-Feeder structure, investor contributions go into a Feeder fund, which invests at least 85% of its assets in the Master Fund and the remaining 15% may be invested in other assets subject to the investment objectives of the Feeder Fund.


Umbrella Funds

Umbrella Funds are established with several investment compartments, commonly called sub-funds, with each one constituting a separate pool of segregated assets not subject to ‘cross-class liability’. The UCITS fund constitutes a single legal entity and each sub-fund has its own separate Net Asset Value (NAV) calculation and issues units corresponding to its assets. Rights of the unitholders of a specific sub-fund only arise from the assets of that compartment and each compartment is liable for the obligations arising from its constitution, operation or dissolution. A compartment of an umbrella fund may invest in another compartment (target) of the same umbrella fund subject to certain restrictions. Each investment compartment may be dissolved or liquidated separately without affecting the operations of the others.


Foreign UCITS

All foreign UCITS, which qualify under the relevant EU directive, based in another EU member state seeking to market their shares in Cyprus must follow a simple regulator-to-regulator notification process.


Eligible Asset Categories for UCITS

  • Transferable Securities (TSs)
  • Money Market Instruments (MMIs)
  • Open-ended collective investment schemes
  • Deposits with eligible credit institutions
  • Financial derivative instruments

Restrictions on UCITS

A UCITS must operate on a principle of risk spreading and as a consequence a UCITS must be properly diversified. There are many individual limits around the areas of asset eligibility and concentration. One of the cornerstones of the UCITS product since its creation has been the imposition of portfolio diversification requirements under what is commonly known as the ‘5/10/40’ rule. This says that a maximum of 10% of a fund’s net assets may be invested in securities from a single issuer, and that investments of more than 5% with a single issuer may not make up more than 40% of the whole portfolio. However, in some cases there are exceptions to this rule, depending on the fund’s investment strategy. As the principal UCITS focus is on portfolio diversification and liquidity there are further limits, all with the purpose not to eliminate all risk, but to keep it within bounds suitable for ordinary investors.


Share Capital Requirements

  • Third-party managed €200,000
  • Self-managed €300,000
The above requirements apply to each investment compartment, when the UCITS is established as an umbrella fund.


Key Benefits of Cyprus UCITS

  • Full EU passporting rights. Cyprus UCITS can be marketed and sold in other EU member states
  • Cost-efficient to set-up and operate in Cyprus
  • Low investment risk and internationally regarded as one of the most efficient asset management tools
  • Robust legislative framework that protects and promotes investor interests
  • Possibility to set up umbrella funds, allowing different sub-funds and share classes
  • Investments are fully transparent and easy to monitor through publication of Net Asset value (NAV) which is made at least every fortnight on the first business day
  • Upon request, investors are entitled to repurchase or redeem their units from the assets of the UCITS
  • Highly skilled pool of professionals in Cyprus
  • Supervised by a competent and accessible regulatory authority


Fund Service Provider Requirements

Investment Manager

If not self-managed the UCITS must appoint an authorised UCITS Management Company. The Management Company and the Depositary must act – at all times – independently of each other. The business of the Management Company must also be managed by at least two persons who satisfy the ‘Fit and Proper’ test.



Fund administration services may be performed either by the UCITS Management Company or outsourced to an external Fund Administrator, responsibilities include:

  • administrative, accounting and bookkeeping services
  • calculating Net Asset Value (NAV)
  • registrar services required with the fund’s operations, such as recordkeeping, processing of subscription and redemption requests and maintenance of the shareholder register


Funds must appoint a Cyprus-qualified audit firm, which is responsible for:

  • specific reporting duties
  • expressing an audit opinion on the financial statements based on IFRS and applicable law


Funds must appoint a single and independent depositary. CySEC requires that the Depositary must have the necessary mechanisms to protect the property of the fund under its custody and forbid its use for own account or for the benefit of third parties. The Depositary can be either a Cypriot bank or a foreign bank with an active branch in Cyprus, or another entity with a registered office in Cyprus or with its seat in another member state of the EU and with a branch in Cyprus, provided it is entitled under its relevant operation license to provide Depositary services and is further subject to, among other, capital adequacy requirements.


Depositary responsibilities include:

  • safekeeping fund’s assets by holding in custody of all financial instruments, which can be registered in the custodian’s books and those that can be physically delivered. Also, for other assets, the custodian must verify ownership of the fund and maintain an up-to-date record of all assets
  • cash flow monitoring in regard to investors and service providers, ensuring the fund’s cash flows are booked at eligible entities and are accurately monitored
  • oversight functions ensuring compliance with the fund’s rules and instruments of incorporation, valuation procedures and that they comply with applicable law and regulations
There are also possibilities to subcontract safekeeping duties to a foreign licensed custodian acting as sub-custodian.


UCITS at a Glance

Legal Form


Variable Capital Investment Company (VCIC), Common Fund (CF)


Share Capital Requirements


Third-party Managed €200,000 or €300,000 if self-managed. These requirements apply to each investment compartment when the UCITS is established as an umbrella fund
Minimum Subscription Amount by Investors


Not Applicable




Stringent rules on EU Directive level regarding use and exposure to leverage


Valuation FrequencyAt least every fortnight on the first business day


Redemption Possibility


At the request of the investor on the immediately next redemption day following submission of the redemption request. Defined redemption settlement periods of no more than four business days
Reporting Requirements


Un-audited report every six months and audited annual report


OtherPossibility of investment compartments, with full segregation and cross-investment allowed. Reduced risk exposure in light of statutory leverage limits, diversification parameters, transparency and risk management requirements



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