What is an ICVC (Investment Company with Variable Capital)?
An Investment Company with Variable Capital (ICVC) or an open-ended investment company is an investment fund domiciled as a company in the United Kingdom. An ICVC has the rights to sell, hold and buy shares and other types of securities.
How does an ICVC investment work?
Since this is an open-ended investment option, its manager can create shares to include in the fund or remove shares as they see fit. When people invest in the fund, the manager must create new shares to accommodate this new investment. When people sell their shares, the manager must redeem and destroy or cancel them.
Doing both of these allows there to always be stable demand and supply of shares regardless of how much money investors are putting into the fund or how much they are pulling out when they want to sell their shares. This balance also eliminates price fluctuations in close-ended funds where there is either more supply or demand depending on prevailing conditions.
The price of the shares in an Investment Company With Variable Capital depends on the price of the underlying assets that the fund holds. These funds also have different investment strategies, including income and growth, or small and big cap, with the manager constantly adjusting strategies to ensure continuing growth.
What is the difference between an ICVC and other types of funds?
One of the main differences between an ICVC and other funds is the structure. An ICVC is an open-ended investment company, meaning the number of shares or units in the fund can change based on investor demand. In contrast, a closed-end fund has a fixed number of shares or units and cannot issue new shares or units once it has launched.
ICVCs are authorised and regulated by the UK’s Financial Conduct Authority (FCA). They must comply with strict rules on investor protection, including having an independent depositary to hold the fund’s assets and regular reporting requirements. In contrast, unregulated funds, such as hedge funds or private equity funds, may not have the same level of investor protection.
ICVCs can invest in a wide range of assets, such as stocks, bonds, and derivatives. Some ICVCs may invest in alternative assets like commodities or real estate. In contrast, other types of funds, such as unit trusts, may have restrictions limiting the types of assets they can invest in.
The costs and fees associated with ICVCs can vary depending on the specific fund and the fund manager. Some ICVCs may charge an initial fee for investing in the fund and ongoing charges, such as an annual management fee. Other funds, such as exchange-traded funds (ETFs), may have lower fees and charges.
What are the benefits of investing in ICVCs?
One of the main benefits of investing in ICVCs is diversification. These funds typically invest in a wide range of assets, which helps to spread the risk of investing across different markets and industries. This diversification can reduce the overall risk of an investment portfolio.
The second is professional management. ICVCs are managed by experienced fund managers with the expertise and resources to research and analyse investment opportunities. They can identify undervalued assets and capitalise on market trends, potentially leading to higher investor returns.
Since they are open-ended, investors can buy and sell shares or units in the fund daily. This gives investors flexibility and liquidity, allowing them to easily adjust their investment portfolio in response to changing market conditions or personal circumstances.
By being authorised and regulated by the Financial Conduct Authority (FCA), investors have a high level of protection through regular reporting requirements, an independent depositary to hold the fund’s assets, and compliance with FCA rules.
An Investment Company with Variable Capital is a fund domiciled as a company in the UK that allows investors to pool money for different investments. These companies are well-regulated, providing investors with many investment options and excellent opportunities for portfolio diversification.
