UCITS ETFs are ETFs (Exchange Traded funds) domiciled in Europe and subject to European Union regulation. These ETFs are mainly held by European investors, but they are also becoming increasingly popular among investors in Latin America, Asia, and other markets due to tax advantages.
UCITS stands for Undertakings for the Collective Investment of Transferable Securities. In simple terms, it is a system of safety standards introduced by the European Union that govern all UCITS ETFs and protect investors from unsuitable investment vehicles.
Under UCITS, an ETF must be diversified enough. No single security held by the fund can make up more than 20% of the fund’s NAV (Net Asset Value). Further, UCITS ETF assets must be separated from those of the ETF provider by an independent custodian. This assures investors that their assets can’t be seized to settle the liabilities of the ETF issuer in case it goes bankrupt and runs into any financial difficulties.
UCITS also obliges an ETF to be liquid and accessible at all times. That means investors can redeem their holdings even if the market is disrupted by a flash crash or any other event. Investors also have the right to redeem their shares directly with the ETF provider (or through the broker).