An investment fund is a vehicle that allows a number of separate and unrelated investors, a group of individuals or companies, to make investments together. By pooling their capital, investors can share costs and benefit from the advantages of investing larger amounts, including the possibility of achieving a broader diversification among a number of different assets and thus spreading their risks. There are many possible arrangements in the way an investment fund can be set up and operated, generally depending on the needs of the fund’s investors. The number of investors in a fund is not fixed. Investment funds can be designed in different forms, for example as an investment company with a board of directors and the investors as shareholders, or as a contractual agreement between the investors and the management company. Funds can be initially set up with an indefinite lifespan, or for a fixed period. They can hold traditional financial assets such as shares and bonds, or investments as exotic as vintage wines, paintings or copyright rights. They can generate income for investors, or seek to maximise the capital value of their investments. They can be open for sale to any individual investor, or be restricted to sophisticated investors such as financial institutions or very wealthy families.
Luxembourg’s fund laws cover many different kinds of fund, but the most important category is UCITS funds, which are set up according to the strict rules prescribed by the European Union and may only invest in certain investment classes. UCITS funds can be purchased by investors in any European country where they are authorized for sale, and in a number of countries in other regions or on other continents where they are permitted, such as certain Asian countries. Luxembourg is home to nearly three-quarters of all the European funds that are sold to investors in more than one country.