SICAVs vs. mutual funds

comparisons

Two very attractive investment options for savers are SICAVs and mutual funds. However, they are often spoken of interchangeably, as if they were the same thing. To avoid this confusion, at Economipedia, we are going to explain the differences between SICAVs and investment funds, without forgetting the advantages and disadvantages.

In the first place, the most important is to highlight that an investment fund is an investment instrument and SICAVs or Variable Capital Investment Companies, on the contrary, are companies. This means that SICAVs are companies and therefore have legal personality, or what is the same, they are holders of a series of rights and obligations. On the other hand, investment funds, as they are not companies, do not have legal personality, which is why they are offered by Collective Investment Institutions.

Differences and similarities between SICAV and investment fund

Similarities:

  • Supervisory body: Both are supervised by the National Securities Market Commission.
  • Risk: You can choose the degree of risk and the level of diversification of the investment portfolio. It is important to note that the capital invested cannot be allocated to a single asset.
  • Participants: 100 investors (mutual funds) or 100 shareholders (SICAV).

Differences:

  • Minimum capital: In investment funds, 3 million euros are required, while to set up a SICAV, 2,400,000 euros are necessary.
  • Organization: SICAVs, being companies, have a Board of Directors that has the capacity to make decisions regarding investment policy. On the contrary, in investment funds there is an entity that takes care of the management. This entity is called a fund manager.
  • Participation: Participation in SICAVs through the purchase of shares, but in investment funds it is essential to have an account with the entity that manages and offers the fund.
  • Taxation: SICAVs must pay a rate of 1% on the net profitability they have obtained throughout the fiscal year. On the contrary, those who invest in mutual funds face higher tax rates. In investment funds, if the profits go from 0 to 6,000 euros, the tax rate will be 19%, while if they are in a range that goes from 6,000 to 50,000 euros, the tax rate will be 21 %. Finally, earnings that exceed 50,000 euros will be subject to a tax rate of 23%.

Strengths and weaknesses of investment funds

Strengths:

  • Professional: The management is in charge of professionals. This provides security, which helps reduce risk.
  • Wide offer: Investment funds are a competitive sector, with a wide offer. The investor has a choice.
  • Liquidity: Except for guaranteed funds (where there are penalties), the amounts invested can be disposed of in a period of less than 72 hours.
  • Taxation: There is no obligation to pay taxes until the invested money is recovered. If you decide to transfer money to other investment funds, you will not have to pay taxes.

Weaknesses:

  • Little decision-making capacity: Little possibility of influencing investment decisions. The investment management is in the hands of third parties (professional managers).
  • They are products with less liquidity than stocks and bonds.
  • It is difficult to participate in some mutual funds, since they are only open to large fortunes or important institutions.
  • High commissions for its management.

Advantages and disadvantages of SICAVs

Among the most important advantages of SICAVs are:

  • Taxation: Only 1% of the Corporation Tax is paid on capital gains for the period. However, when we withdraw the money from the SICAV, in case of obtaining profits, we must pay taxes as if it were a sale of shares. There is also no tax to be paid when transferring funds from one SICAV to another (this must have at least 500 shareholders).
  • Available information: Before buying shares in a SICAV, the investor can access reports on these companies on the CNMV website.
  • Acquisition of shares: Buying shares of this type of shares is simple, since it can be done through financial institutions.

Of course, we must not forget that this investment vehicle also has disadvantages and disadvantages:

  • Decision-making power in the hands of the majority shareholders, who are the ones who decide the investment policy. This makes them not highly recommended for small investors.
  • Very demanding reporting obligations for regulatory and supervisory bodies. Great control from the European Union.

In view of the advantages and disadvantages of SICAVs and investment funds, the following question should be asked: Which of the two options is better to invest? All this will depend on the investor's preferences. If you are looking for greater decision-making power, as partners, it will be convenient for you to join a SICAV, but if you prefer a more professional management and that others take charge of the investment policy, the best option is an investment fund.

Taxation deserves special attention, since in this chapter the SICAVs will win. However, investment funds will have the great advantage that there are no limits when transferring money to other funds. In any case, the final decision is left to the investor.

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