There are rules to make sure that unit trusts and OEICs are sufficiently diversified. The FCA imposes an obligation on authorised fund managers in relation to UCITS schemes. UCITS schemes are investment funds established in accordance with the EU UCITS Directive and once authorised can be freely marketed to other EU members.

Rules

• A fund investing broadly in securities but not an index tracker cannot hold more than 10% of the fund in the shares in 1 company.
  • It can invest in 4 separate holdings to a maximum of 10% each
  • Any other share cannot be more than 5%
  • Thus it means the fund must have at least 16 holdings. (12 holdings at 5% each and 4 holdings at 10% each). Most funds have 50-100 holdings
• Funds which are index tracking funds can hold a maximum of 20% of the fund in one company, and in exceptional scenarios up to 35%.
• UCITS funds are stopped from the overexposure to one company or group of companies by limiting their holding to a maximum of 20% of securities or money market instruments issued by the same group
• Funds investing into more than 35% government fixed interest securities (UK Gilts) by a single issuer must invest into at least 6 different issues of stock. No single stock holding can exceed 30%.
• UCITS funds can hold up to 10% in unlisted securities and up to 20% in other UCITS collective investment schemes.
• Non UCITS funds can hold up to 20% in unlisted securities and up to 35% in other UCITS collective investment schemes.
• There is no limit on holding cash, other than money market funds, but most funds hold around 5% cash.