What is a Sicav?
An open-ended investment company (Sociétés d’Investissement à Capital Variable, or "Sicav") – together with the mutual trust (Fonds Commun de Placement or "FCP") – forms part of the family of UCITS (Undertakings for Collective Investment in Transferable Securities).
A Sicav is a company aiming to pool the risks and rewards of investing in transferable securities like stocks, bonds, marketable debt securities and other financial instruments authorised either by local regulations in effect or the Sicav articles of association.
From the legal perspective, Sicav vehicles have a legal personality and are in principle managed by a board of directors appointed by the investors in their capacity as shareholders.
The board of directors defines the company's management policy but can delegate management to other managers, which must be approved by Luxembourg's Financial Sector Supervisory Commission (Commission de Surveillance du Secteur Financier, or "CSSF").
Investors have voting rights and can participate in the general shareholders' meetings.
The guiding principle of a Sicav – and UCITS vehicles more generally – is to diversify risks.
When an investor has a small amount to invest, he or she must usually buy just one security in a company. If this asset declines sharply the investor's portfolio shall suffer by the same amount.
In a fund bringing together several investors, the balance concerned is greater and it should be possible to buy several securities and so in the process diversify investments for the same amount, since the investor has a share in this fund. If one of the securities making up the managed fund declines, the value of the investor's share shall only be affected in proportion to the security in the fund.
At the end of the day, the value of the managed fund shall experience much smaller variations than a portfolio containing a single security.
So by investing in a Sicav instead of a transfe