PPR Funds: What they are and how they work
At a glance:
• PPR funds are investment funds intended for the medium and long term and are subject to a specific tax regime under Portuguese law.
• They do not offer guaranteed capital; the value of the units fluctuates daily in line with market performance.
• Depending on their legal form, they are regulated by either the CMVM or the ASF.
• Banco Carregosa, a Portuguese private bank that has been in continuous operation since 1833, offers a professionally managed PPR Fund solution.
PPR funds have now been established as a structured investment alternative and are no longer merely seen as a tool to supplement retirement pensions. This article focuses on the technical structure of the product, covering topics such as its structure, functionality, management, and applicable rules. For thorough planning and detailed tax information, see our comprehensive guide to PPRs.
What is a PPR Fund?
A PPR fund is a type of collective investment vehicle that is regulated by specific legislation. It is designed to encourage medium- and long-term savings and investments and benefits from a special tax regime.
In legal terms, a PPR fund is a separate trust without legal personality that is owned by its participants. It is managed by a supervised management company and held in custody by an independent depository. This separation is vital because, if the management company has any problems, the fund’s assets will still be protected.
In Portugal, there are three distinct legal forms under the ‘umbrella’ of PPRs, which should not be confused:
1. PPR funds in the form of securities investment funds, managed by collective investment scheme management companies (SGOIC), supervised by the CMVM.
2. PPR pension funds, managed by pension fund management companies (SGFP), supervised by the ASF.
3. PPR insurance, life insurance contracts with a financial component, managed by insurers under the supervision of the ASF.
When the market uses the term ‘PPR funds’, it is mainly referring to the first two categories. This article focuses on this fact.
How a PPR fund works in practice
Management Company and depository
The management company defines the investment policy, implements allocation decisions and calculates the fund’s value on a daily basis. The depository, which is typically a bank, holds the assets in safekeeping and oversees compliance with management rules. This dual oversight provides investors with an essential institutional safeguard.
Investment policy and asset classes
The investment policy of each PPR fund is set out in the prospectus and the KID (Key Information Document). This policy sets out the limits of exposure to asset classes such as shares, bonds and money market instruments, and in some cases, funds of funds. Since 2018, Portuguese legislation has significantly relaxed the limits on asset allocation, allowing greater exposure to equities and, in certain cases, enabling PPRs to be invested entirely in equity assets. This has made the category more flexible for long-term investors.
Investment units and net daily value (NAV)
A participant’s capital is represented investment units (UPs – unidades de participação). Each UP has a daily NAV (Net Asset Value), which is calculated by dividing the net value of the fund by the total number of units in circulation. The NAV varies based on the performance of the assets in the portfolio and is published daily by the management company.
Subscription, additional contributions and redemption
The capital is converted into investment units (UPs) at the net asset value (NAV) on the subscription date. Participants may make additional contributions over time, with each contribution being treated for tax purposes according to its subscription date.
Redemption is subject to legal conditions, such as retirement, long-term unemployment, serious illness, permanent disability, or the participant’s death. In these cases, a more favourable tax regime applies.
If these conditions are not met, redemption may result in the clawback of previously obtained tax benefits and the taxation of income, which may incur penalties depending on how long the investment has been held for.
Recommended reading
For a detailed analysis of these schemes, see our comprehensive guide to PPRs.
PPR funds vs. PPR insurance: a technical comparison
| Criteria | PPR Fund | PPR Insurance |
|---|---|---|
| Legal form | Securities investment fund or pension fund | Life insurance contract |
| Management entity | SGOIC or SGFP | Insurance company |
| Supervision | CMVM or ASF | ASF |
| Guaranteed capital | No | In many cases, yes |
| Disclosed valuation | Daily (NAV) | Annual (as a general rule) |
| Typical exposure | Equities, bonds, multi-asset | Mainly bonds and conservative instruments |
| Return potential | Higher, with greater volatility | Lower, with greater stability |
| Typical suitability | Balanced to dynamic profiles, long-term horizon | Conservative profiles, short to medium-term |
The choice between a PPR fund and PPR insurance is not about finding the ‘best product’, but about finding the most suitable option for your profile, time horizon, and the role of the PPR in your overall portfolio.
Recommended reading
For practical selection criteria, see "Best PPRs: Expert tips for choosing the most profitable ones".
Advantages and technical limitations of PPR funds
Advantages
• Appreciation potential: they enable you to invest in risky assets, offering potentially higher long-term returns than traditional solutions, while mitigating risk through geographical and asset class diversification.
• Duality and tax efficiency: the tax scheme for PPRs offers two options that can be adapted to your liquidity strategy:
? Tax relief on contributions: you can deduct 20% of amounts invested in a PPR from your personal income tax liability, up to an annual limit of €400, depending on the subscriber's age. This benefit is also subject to the overall limits on personal income tax deductions. These limits vary according to a household's taxable income, or income bracket.
? Tax relief on redemption: if the PPR is redeemed in accordance with the legal provisions, the income received is subject to a reduced income tax rate of just 8%. Even when redemption occurs outside of the legally prescribed conditions, the tax regime remains more favourable than that of most financial products. A reduced tax rate is applied to the income: 21.5% if redemption occurs within the first five years, 17.2% if it occurs between the fifth and eighth year, and 8.6% if it occurs after the eighth year.
? Total freedom: if you choose not to declare the PPRs on your tax return, you can withdraw the money at any time without incurring any penalties.
• High operational transparency: you have daily access to the value of your investment unit (NAV), as well as constant auditing and supervision via the Key Information Document (KID) and periodic reports.
• Flexibility and free transfers: you can make additional contributions to your PPR and transfer between PPRs without losing your accrued benefits. Transfers between PPR funds are commission-free. However, in PPR insurance schemes with guaranteed capital or income, a maximum redemption fee of up to 0.5% may be charged.
Limitations
• No guaranteed capital: the value of your PPR fluctuates daily in line with market performance, which means there is a risk of loss, particularly if you need to withdraw the money in the short term.
• Impact of volatility: as the portfolio invests in real assets, such as shares, it may experience sharp fluctuations. This requires investors to have a high-risk tolerance.
• Costs that erode returns: management and custody fees reduce your net returns over time. Always check the TER (Total Expense Ratio) to understand the actual cost of the fund.
• Penalties for early withdrawals: If you claim your PPR as a tax deduction and then withdraw the money outside of the legal conditions, you will have to repay the tax benefits received, plus any legal penalties, in accordance with the current tax regime (i.e. a 10% interest surcharge for each year since the deduction was made).
Regulatory framework for PPR funds
In Portugal, PPR funds are regulated by specific legislation governing Pension Savings Plans, which is supplemented by the Securities Code and the regime applicable to pension funds. Supervision varies according to the legal form:
• Securities-based PPR funds: Portuguese Securities Market Commission (CMVM).
• PPR pension funds and PPR insurance:Insurance and Pension Funds Supervisory Authority (ASF).
Both bodies provide the public with information on the PPRs under their supervision. It is recommended that you consult these official sources before deciding whether to subscribe.
Banco Carregosa’s experience in managing PPR funds
Banco Carregosa has been in continuous operation since 1833 and is registered with Banco de Portugal (BdP) under no. 0235 and with the Portuguese Securities Market Commission (CMVM) under no. 0169. It is the oldest private bank in Portugal. Its enduring success reflects its well-established practices in asset management and investor protection.
Our range of PPR funds includes the Sixty Degrees PPR/OICVM Flexível Fund, an actively managed solution with a global diversification strategy, designed for investors with a medium- to long-term investment horizon.
Recommended reading
To integrate PPR funds into a broader wealth management strategy or to assess their impact on your retirement planning, contact us.
Frequently asked questions about PPR funds
What exactly is a PPR fund?
A PPR fund is a type of collective investment fund that invests in financial assets such as shares, bonds and money market instruments. The aim is to generate medium- and long-term savings while benefiting from the specific tax regime for Pension Savings Plans provided for under Portuguese law.
Are PPR funds guaranteed to protect the capital invested?
No, PPR funds do not offer a capital guarantee. The value of the units fluctuates daily depending on market performance and losses may be incurred. However, PPR insurance policies frequently offer a capital guarantee and/or a guaranteed return.
Who regulates and supervises PPR funds in Portugal?
The CMVM supervises securities-based PPR funds. PPR pension funds and insurance policies are overseen by the ASF. Both bodies ensure compliance with transparency, risk management and investor protection rules.
How is the daily value of a PPR fund calculated?
It is calculated by the NAV (net asset value), which is the total net value of the fund divided by the number of investment units in circulation. The management company calculates and publishes the NAV daily.
What is the minimum investment amount required for a PPR fund?
This varies depending on the fund. In Portugal, many PPR funds allow an initial subscription of €100 and additional contributions of €25. Please check the specific terms and conditions of your chosen fund.
Can I transfer my PPR fund to another management company?
Yes, transfers are permitted and, provided the legal conditions are met, they do not result in the loss of accumulated tax benefits. See the article "Transferring a PPR" for details of the procedure.
Are PPR funds worth investing in?
The right investment depends on an investor’s risk profile, time horizon and objectives. These funds are a vital means of building up savings to supplement the State Pension and ensure greater financial stability in the future. In the long term (over ten years), PPR funds can effectively combine growth potential with tax optimisation. For personalised selection criteria, see our article on how to choose the best PPR fund.
Disclaimer: This article has been prepared by Banco Carregosa for informational and educational purposes only. It does not constitute an investment proposal or recommendation to buy, nor does it constitute personalised financial advice. Investing in financial instruments carries risks, including the possibility of losing your initial investment. Past performance does not guarantee future results. Before making any investment decisions, we recommend that you consult an account manager or financial adviser to ensure that they are suitable for your risk profile and financial objectives.