OEIC & SICAV fund structures

M&G offers retail funds under both the OEIC (UK-domiciled open-ended investment company) and SICAV (Luxembourg-domiciled société d’investissement à capital variable) structures.

We summarise below the key features of both structures, looking at two main areas: legal structure and regulation, fund and investor taxation.

Legal structure and regulation

OEIC SICAV
Definition
  • Open-ended investment company (UK-domiciled)
  • Société d'investissement à capital variable (Investment company with variable capital) (Luxembourg-domiciled)
Background
  • Commonly used in the UK; similar structures also used in other regions
  • Introduced in the UK in 1997 as a flexible alternative to unit trusts
  • Commonly used in Western Europe, also in other regions
  • Legal company structure introduced early in the last century
Legal structure / UCITS
  • An OEIC can be established as an umbrella company with a number of sub-funds, or as a stand-alone fund
  • Can issue a range of share class types which may be differentiated by fee structure, distributions and currency; including currency hedged or unhedged shares
  • Can be established as a UCITS (Undertakings for Collective Investment in Transferable Securities) or retail non-UCITS
  • A SICAV can be established as an umbrella company with a number of sub-funds, or as a stand-alone fund
  • Can issue a range of share class types which may be differentiated by fee structure, distributions and currency; including currency hedged or unhedged shares
  • Can be established as a UCITS (Undertakings for Collective Investment in Transferable Securities) or retail non-UCITS
Regulatory authority
  • Financial Conduct Authority (FCA), in the UK
  • Commission de Sureveillance du Secteur Financier (CSSF), in Luxembourg
Corporate governance
  • The Authorised Corporate Director (ACD) is responsible for the day-do-day operation of the OEIC
  • A SICAV has a Board of Directors, which can delegate management responsibility to a management company
Role of Depositary / Custodian
  • A Depositary is responsible for the custody of fund assets
  • The Depositary is also responsible for oversight of the ACD to ensure the interests of investors are protected
  • The Depositary and ACD must be completely independent
  • A Custodian (Luxembourg-based) is responsible for the custody of fund assets and ensuring the interests of investors are maintained
  • Oversight is usually undertaken by the Board of Directors
Segregation of liability between sub-funds
  • Legislation to allow the segregation of liability between sub-funds in an umbrella OEIC provided for under UK law
  • This means that assets in each sub-fund are ring-fenced from others in the range
  • Segregation of liability between sub-funds is provided for under Luxembourg law

Fund taxation

OEIC  SICAV
Fund Income
  • The OEIC is in principle subject to UK corporation tax at 20%
  • Interest income and property income are taxable; however, expenses can be deducted which often reduces the effective tax to nil
  • Dividends received by a fund are not taxable
  • Capital gains realised by the fund are exempt from tax
  • No tax is levied on the fund – all tax arises in the hands of the investor
Withholding tax
  • OEIC funds pay withholding tax on foreign dividends, levied by the country in which the dividend is paid
  • Due to the wide range of tax treaties in place with the UK, withholding tax on investment income is often reduced
  • SICAV funds pay withholding tax on foreign dividends, levied by the country in which the dividend is paid
  • SICAV funds benefit from certain tax treaties which can reduce the withholding tax to be applied
Other fund taxes
  • None
  • Taxe d’abonnement of 0.05% pa for retail investors and 0.01% for institutional investors, based on fund net asset value

Investor taxation

OEIC  SICAV
Income and capital gains
  • Most investors are taxed only on the actual distributions received, or on deemed investment returns from funds that are reported to them
  • Most investors are taxed only on the actual distributions received, or on deemed investment returns from funds that are reported to them
Interest distributions
  • There is no withholding tax on distributions from OEIC funds.
  • There is no withholding tax on distributions from SICAV funds.

M&G retail funds

For most practical purposes, the OEIC and SICAV structures are very similar, both offering the ability to establish umbrella companies with a number of single-priced sub-funds, and within the UCITS regime.

Depending on the portfolio composition and strategy of the fund, there may be some differences in the post-tax return between an OEIC structure and a SICAV structure due to different access to double tax treaties.

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