Financial Glossary, ubi est?

February 16, 2016 10:35 am

…while investing in a UCITS fund, which can be set up as an FCP or a SICAV, you should check the OGC’s and the SRRI in the latest KIID document. But if it’s an AIF or a SIF fund, then there is no KIID available of course.

If you cannot make any sense of the above, do not worry. There is absolutely no need to panic. This is a quote from a financial advisor speaking in ‘financialese’ to a potential client who wishes to invest in a fund. In most cases, however, private investors who are not working in the banking world or in the financial industry, are certainly not familiar with any of the terms related to investment funds.

Just to give some background information: UCITS funds are the most common type of investment funds, but only very few people know what they are. UCITS is an acronym for Undertakings for Collective Investments in Transferable Securities and at the same time it is the name of a fund related European Directive, which is updated every couple of years by the European Parliament and Council. We are now facing the implementation in all member states of UCITS Directive nr. 5 in March 2016.

But even with the full name of the acronym at hand, the meaning of terms like ‘collective investments’ and ‘transferable securities’ are far from self-explanatory.

One of the goals of the UCITS Directives is to create transparency and provide basic fund information for every investor. These Directives are especially meant for those investors who are not fluent in ‘financialese’ and who have no knowledge about investment funds at all. “Do not invest in what you don’t understand” Warren Buffett would advise. If a successful and experienced billionaire like Warren Buffett says so, the man is probably right!

FinantialGlossariesIt is therefore surprising that even today, these UCITS Directives have never stipulated that a financial glossary should be included in any of the fund documents that the investors are provided with. In other words, these mandatory documents are meant to inform investors about a particular fund, but they do not inform the investor what they are being informed about exactly.

Many funds are for example set up as SICAV fund, with SICAV being the acronym for Société d’Investissement à Capital Variable. Often this acronym is written out in full in the documents, it does not however, give a definition of what a SICAV is, nor does it explain what it means for an investor to invest in a SICAV fund. This should be food for thoughts for the next UCITS Directive nr. 6.

 

CorineKlipWritten by Corine Klip
Study visitor at TermCoord
Former data analyst at Morningstar

 

 

 


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