What is an FCP?
FCPs are French for “Fonds Commun de Placement” which translates as “Common Fund for Investment.” This type of investment fund is used in France and other French-speaking countries such as Belgium and Luxembourg.
This fund pools money from multiple investors to invest in multiple financial assets. These assets include stocks, bonds, and other securities. These funds are managed and run by professional portfolio managers who are responsible for making decisions on behalf of the fund’s investors.
What are the advantages of investing in FCPs over traditional Investment funds?
A significant benefit of FCPs over traditional Investment funds is lower costs. FCPs are subject to lower regulatory requirements and have simpler legal structures, translating into lower administrative and management costs.
The second advantage is that they are very flexible since they can be customised to meet the specific needs of different investors. Different investors might be looking for exposure to a particular asset class, geographic region, or industry sector, and FPCs allow them to do this easily. The flexibility of an FCP allows investors to tailor their investments to their risk tolerances, allowances, and investment objectives.
FCPs are also required to disclose their holdings and strategies regularly. For this reason, they offer greater transparency than traditional Investment funds, allowing investors to more easily monitor their portfolios’ performance and make informed decisions about them.
What are the different types of FCPs available for investment?
Risk Investment funds, or FCPR, specialise in investing in assets not listed on stock markets. These stocks typically belong to new companies that need funding but are not yet large enough to be listed. They have a high return, typically over 15%, and advantageous taxation as they are exempt from capital gains tax if you hold onto them for more than five years.
The second type is SICAV (Sociétés d’Investissement à Capital Variable) or funds from companies with variable capital. These are run by companies whose investors become shareholders of the fund compared to traditional Investment funds, where investors are the fund’s co-owners.
The other type is company Investment funds (FCPE) set up by an employer. They are intended to serve as a collective saving for the company’s employees.
A Flexible Investment Plan (FIP) allows you to choose an investment frequency for a period of your choice.
An FCPI (fonds commun de placement dans l’innovation, or mutual fund for innovation) helps investors in funds where 70% of the assets must be in innovative and unlisted businesses.
What is the minimum investment amount?
The fund management company usually sets the minimum investment amount for FCPs, and it can vary depending on the specific fund and the fund management company. Generally, the minimum investment amount for FCPs can range from as low as a few hundred Euros to tens of thousands of Euros or more.
What is the difference between open-ended and closed-ended FCPs?
The main difference between the two lies in how investors can buy and sell their shares in the fund. An open-ended FCP allows investors to buy or sell at any time based on current net asset value (NAV) of the fund.
A closed-ended FCP, on the other hand, has a fixed number of shares outstanding, and investors cannot buy or sell shares directly with the fund. Instead, investors must trade the shares on a stock exchange, where the share price may differ from the fund’s NAV depending on market demand.
What are the risks associated?
These risks include:
- Market Risk – Their value can fluctuate depending on market conditions.
- Liquidity Risk – It may be difficult to sell shares in the fund at a desired price or time, especially in volatile market conditions.
- Credit Risk – The fund may experience losses if one or more underlying investments defaults on its obligations.
- Currency Risk – Changes in exchange rates can affect the value of the fund’s investments and its returns.
