Collective Investment Schemes 中文: Types, Benefits, and Risks

Collective investment schemes, also known as mutual funds, are a popular way to invest money. They allow individuals to pool their resources together with others to invest in a variety of assets, such as stocks, bonds, and real estate.

There are several types of collective investment schemes, including open-ended funds, closed-ended funds, and exchange-traded funds. Open-ended funds allow investors to buy and sell units at any time, while closed-ended funds have a fixed number of units that are traded on a stock exchange.

One of the main benefits of collective investment schemes is that they provide diversification, which can help reduce risk. By investing in a variety of assets, investors can spread their risk and potentially increase their returns.

Related reading: Collective Investment Schemes Definition

A collective investment scheme, or CIS, is any arrangement that pools money or assets to generate profits or income, which are then shared among participants. This is the core concept of a CIS.

According to the Financial Services and Markets Act 2000, a CIS is defined as any arrangement that enables participants to share in profits or income arising from the acquisition, holding, management, or disposal of property. This includes money and any other type of property.

The structure of a CIS can be flexible, involving a contract, partnership, trust, or company, and it can be regulated or unregulated. The operator of the scheme must be authorized by the Financial Conduct Authority (FCA).

To be considered a CIS, the property must be managed as a whole by the operator, and participants' contributions and income or profits must be pooled. In other words, the assets are collectively owned and managed.

Here are the key characteristics of a CIS:

There are two main types of collective investment schemes: open-end funds and unit investment trusts.

Open-end funds are equitably divided into shares that vary in price in direct proportion to the variation in value of the fund's net asset value.

Consider reading: What Is an Open Ended Fund and Closed End Fund

Each time money is invested in an open-end fund, new shares or units are created to match the prevailing share price, ensuring that shares remain a direct reflection of the underlying assets.

In contrast, unit investment trusts (UITs) are issued to the public only once when they are created and generally have a limited life span.

UITs do not have a professional investment manager, and their portfolio of securities is established at the creation of the UIT.

There were 4,917 UITs in the United States at the end of 2018, with combined assets of less than $0.1 trillion.

Broaden your view: Open Closed End Fund

A collective investment scheme (CIS) is a legal concept that originated from European Union Directives to regulate mutual fund investment and management.

In the UK, the primary statute governing CIS is the Financial Services and Markets Act 2000, specifically Part XVII, sections 235 to 284.

To operate a CIS in the UK, specific requirements must be satisfied, including application to the FCA.

Related reading: Uk Index Funds

A CIS may be either regulated or unregulated, depending on whether or not it has been given regulated status by the FCA or an equivalent regulator.

A regulated CIS is any of the following: a UK authorised unit trust, a UK authorised investment company with variable capital (ICVC), a CIS recognised under s.264 FSMA, or a CIS recognised under s.272 FSMA.

For UK purposes, an unregulated CIS is any CIS which does not fall within the list set out above under 'Regulated CIS'.

In Singapore, offers of units in a CIS must comply with the requirements under Division 2 of Part XIII of the SFA, including authorisation or recognition by MAS.

Here are the requirements for authorisation or recognition of a CIS in Singapore:

To offer units in a collective investment scheme (CIS) in Singapore, you need to meet certain requirements.

The CIS must be authorised by the Monetary Authority of Singapore (MAS) if it's constituted in Singapore, or recognised if it's constituted outside Singapore.

On a similar theme: Collective Investment Schemes Singapore

You can apply for authorisation using Form 1 on OPERA, and MAS will authorise the CIS if the manager holds a capital markets services licence and there's a trustee approved under section 289 of the SFA.

Alternatively, you can apply for recognition using Form 2 on OPERA, and MAS will recognise the CIS if the laws and practices of the CIS jurisdiction afford equivalent protection to investors in Singapore, the manager is licensed or regulated in its principal place of business, and there's an appointed Singapore representative.

Here are the key requirements for authorisation and recognition:

Exempted Offers are a crucial aspect of Collective Investment Schemes (CIS) regulations.

In Singapore, certain offers of units in a CIS are exempt from authorisation and prospectus registration requirements. These include Small Offers, which raise a total amount of S$5 million or less in 12 months.

Private Placement offers made to no more than 50 persons in 12 months are also exempt.

Exempted offers can be made to accredited or institutional investors.

However, to qualify for these exemptions, the offer must be made in or accompanied by an information memorandum that contains salient information about the restricted scheme.

The manager of the scheme must also be licensed or regulated to manage the scheme property in the jurisdiction of its principal place of business and be fit and proper.

Here's a summary of the exempted offers:

To navigate the complex world of regulations and laws, it's essential to have access to accurate and up-to-date information. You can find the current lists of authorised, recognised and restricted schemes, as well as approved trustees of Collective Investment Schemes (CIS), at these links.

These links provide a wealth of information, including Retail schemes under the SFA, Retail schemes approved as Qualifying CIS under the ASEAN CIS Framework, Property funds authorised under the SFA, Restricted schemes notified under the SFA, and CIS trustees approved under the SFA.

If you're looking for a specific type of CIS, you can easily find it by visiting the provided links. For instance, you can find Retail schemes under the SFA or Property funds authorised under the SFA with just a few clicks.

Here are some key links to keep in mind:

Singapore's Monetary Authority revises classification criteria to better capture the risk of technology companies.

The revised criteria now include a new metric for measuring the risk of technology companies, which is based on their ability to generate revenue through non-traditional means.

This new metric assesses the potential of a company to generate revenue through innovative business models, such as subscription services or data monetization.

The revised criteria also place greater emphasis on a company's ability to adapt to changing market conditions.

A company's ability to innovate and stay ahead of the competition is now a key factor in determining its risk profile.

The revised criteria are designed to provide a more comprehensive picture of a company's risk profile, taking into account its technology, business model, and market conditions.

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The law surrounding collective investment schemes (CIS) is a complex and multifaceted topic. The primary statute in the United Kingdom is the Financial Services and Markets Act 2000, which deals with the requirements for a CIS to operate in Part XVII, sections 235 to 284.

A CIS is defined as "any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income." This definition is found in section 235 of the Financial Services and Markets Act 2000.

The law aims to ensure that financial "products" sold to the public are sufficiently transparent, with full disclosure about the nature of the terms. This is achieved through the regulation of CISs, which are overseen by the Financial Conduct Authority (FCA) in the UK.

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The FCA has specific requirements that must be satisfied for a CIS to be regulated in the UK. These include making an application to the FCA and meeting certain requirements.

Here is a brief overview of the key laws and regulations governing CISs in the UK:

It's worth noting that the AIFMD defines an alternative investment fund (AIF) as a CIS that is not authorized under the UCITS Directive. This means that not all CISs are AIFs, but many are.

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Diversification is key to reducing investment risk. The more diversified your capital, the lower the capital risk. By investing in a range of equities or other securities, you can minimize the risk of losing your capital.

A well-diversified portfolio can help you avoid systematic risk, which occurs when all the shares in your portfolio are affected by adverse market changes. For example, if you invest in equities and fixed income securities, you can reduce the impact of market fluctuations.

On a similar theme: Magellan Global Equities Fund

Investment managers may use statistical measures to compare investment performance and manage risk. Alpha represents the fund's return when the benchmark's return is 0, and a higher alpha indicates better performance. Beta represents the fund's sensitivity to market changes, and a lower beta can help reduce risk.

Here are some key statistics to consider when evaluating investment risk:

Spreading risk is a key investment principle that involves diversifying your capital to reduce capital risk. The more diversified your capital, the lower the capital risk.

Investing in a range of individual securities can help minimize the risk of losing your capital, as seen in the case of Marconi. If your money is invested in a single equity that collapses, you could lose your capital.

Collective investments, by their nature, tend to invest in a range of individual securities. However, if the securities are all in a similar type of asset class or market sector, there is a systematic risk that all the shares could be affected by adverse market changes.

Discover more: Investment Firm Specialising in Managing Risk

To avoid this systematic risk, investment managers may diversify into different non-perfectly-correlated asset classes. For example, investors might hold their assets in equal parts in equities and fixed income securities.

Here are some key statistics on the benefits of diversification:

By spreading your risk through diversification, you can reduce your exposure to market fluctuations and potentially achieve better investment returns.

Gearing and leverage can greatly increase the investment risk of a fund by introducing volatility and exposure to capital risk.

Gearing allows collective investment vehicles to borrow money to make further investments, a process that can be beneficial if markets are growing rapidly.

However, if the cost of borrowing is more than the growth achieved, a net loss is incurred.

This can lead to a significant downfall, as seen in the case of the split capital investment trust debacle in the UK in 2002, where gearing played a major contributory factor.

Investors should be aware of the risks involved with gearing and leverage, and carefully consider the potential consequences before making investment decisions.

There are two main approaches to managing a fund: active management and passive management. Active managers try to beat the market by picking and choosing individual stocks, while passive managers simply follow the market as a whole.

Active management involves dynamic portfolio strategies, where managers buy and sell investments based on their market analysis. This approach aims to outperform the market, but it can be riskier and more expensive.

Passive management, on the other hand, focuses on minimizing costs by sticking to a fixed portfolio strategy. This approach is often used in index funds, which aim to replicate the performance of a market index.

Some funds use a hybrid approach called enhanced indexing, which combines the low costs of passive management with the flexibility of active management.

Here's a comparison of active and passive management:

The success of active management is not guaranteed, as evidenced by the example of Richard Branson's bet with Nicola Horlick, where her active fund failed to beat the FTSE 100 index.

Investors who put their money into collective investment vehicles, such as mutual funds, have limited control over their investments.

They can choose the type of fund to invest in, but they have no say in the individual holdings that make up the fund.

As a result, investors in collective investment vehicles often have no rights connected with individual investments within the fund.

This means they can't attend the company's annual general meeting or vote on important matters.

In contrast, investors who hold shares directly have these rights.

Check this out: Collective Agreement

Collective investment schemes can provide a stable source of income, as seen in the example of fixed-income investments, which typically offer regular returns in the form of interest or dividends.

One of the main benefits of collective investment schemes is their diversification, which can help spread risk and increase potential returns, as discussed in the article section on types of collective investment schemes.

Investing in a collective investment scheme can be a cost-effective way to invest, with some schemes offering lower fees compared to individual stock market investments.

Diversification can also reduce the impact of market volatility, as seen in the example of equity investments, which can be affected by market fluctuations.

However, collective investment schemes also come with some drawbacks, such as the risk of losing money if the scheme performs poorly, as mentioned in the article section on risks associated with collective investment schemes.

Investors should carefully consider their financial goals and risk tolerance before investing in a collective investment scheme, as discussed in the article section on suitability and risk.

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Pricing and fees are essential aspects of collective investment schemes.

An initial charge may be levied on the purchase of units or shares, covering dealing costs and commissions paid to intermediaries or salespeople. This fee is typically a percentage of the investment.

Different unit/share classes may have different combinations of fees/charges.

Open-ended vehicles are either dual priced or single priced. Dual priced vehicles have a buying (offer) price and selling (bid) price, with the buying price being higher than the selling price.

Explore further: Types of Investment Vehicles

The difference between the buying and selling price is typically 5% and may be varied by the vehicle's manager. The difference includes the initial charge for entering the fund.

Single priced vehicles notionally have a single price for units/shares and this price is the same if buying or selling.

A dilution levy can be charged at the discretion of the fund manager to offset the cost of market transactions resulting from large un-matched buy or sell orders.

In the international arena, collective investments are recognized and utilized in various forms. Internationally recognized collective investments include Exchange-traded funds (ETFs), which are open-end funds traded by listed shares on major stock exchanges.

ETFs offer a convenient way to invest in a diversified portfolio of assets, allowing investors to buy and sell shares throughout the trading day. Real Estate Investment Trusts (REITs) are another type of collective investment that invests in real estate.

Curious to learn more? Check out: Pgim Real Estate Funds

REITs provide a way for individuals to invest in real estate without directly managing properties, offering a more accessible and liquid option. Sovereign investment funds are also an important aspect of international collective investments.

These funds are typically managed by governments and invest in a variety of assets, including stocks, bonds, and real estate.

Here's an interesting read: Are Real Estate Investment Trusts a Good Investment

Internationally Recognised Collective Investments are a popular choice for investors around the world. One type is the Exchange-traded fund (ETF), which is an open-end fund traded by listed shares on major stock exchanges.

ETFs offer a flexible and liquid way to invest in a variety of assets, from stocks and bonds to commodities and currencies. They can be traded throughout the day, allowing investors to quickly respond to market changes.

Real Estate Investment Trusts (REITs) are another type of internationally recognised collective investment. These close-ended funds invest in real estate, providing a way for investors to gain exposure to the property market without directly owning physical properties.

Sovereign investment funds are also widely used, although their exact structure and operation may vary depending on the country of origin.

The United States market is a significant player in the world of collective investments, with a rich history and diverse range of options.

The Investment Company Act of 1940 regulates investment funds in the US, broadly categorizing them into open-end funds, closed-end funds, and unit investment trusts.

As of 2019, the top 5 asset managers accounted for 55% of the 19.3 trillion in mutual fund and ETF investments.

The top 5 active management funds in 2018 were Capital Group Companies (using American Funds brand), Fidelity Investments, Vanguard, T. Rowe Price, and Dimensional Fund Advisors.

Closed-end funds are less common in the US, with around $277 billion in assets under management as of 2019.

Here's a breakdown of the top 5 asset managers in the US market:

The US market also offers a range of investment options, including open-end funds, closed-end funds, and unit investment trusts, each with its own unique characteristics and benefits.

In Ireland, you've got several options for collective investments, which are essentially funds that pool money from multiple investors to invest in assets.

The Common Contractual Fund (CCF) is one such option, allowing for a flexible and efficient way to manage investments.

You can also consider an Irish Collective Asset-Management Vehicle (ICAV), which is a type of fund that's specifically designed for investment purposes.

Qualifying Investor Alternative Investment Funds (QIAIFs) are another option, catering to investors who are considered sophisticated and can handle higher-risk investments.

Retail Investor Alternative Investment Funds (RIAIFs) are designed for individual investors, providing a more accessible way to invest in alternative assets.

Loan Originating Alternative Investment Funds (L-QIAIFs) are specialized funds that focus on originating loans, offering a unique investment opportunity.

Here are some Ireland-specific collective investment options:

Offshore investments can be a complex topic, but let's break it down. A segregated portfolio company is a corporate entity that holds various investments under a single legal entity.

This structure can provide tax benefits and asset protection, but it's essential to understand the legal implications. Offshore collective investments are often used for estate planning and wealth management.

One example of an offshore collective investment is a segregated portfolio company, which can hold multiple investments under one umbrella.

Here are some key features of a segregated portfolio company:

The FCA has been busy making changes to the rules surrounding collective investment schemes. In June 2013, they amended the financial promotion rules to restrict the marketing of unregulated CISs (UCIS) to retail investors.

These changes were made because the majority of retail promotions and sales of UCIS reviewed were found to be inappropriate and did not meet the existing FCA Handbook requirements. The rule changes aim to limit the number of retail clients being wrongly advised to invest in UCIS.

The marketing restrictions now apply to "non-mainstream pooled investments" (NMPIs), which includes a unit in an unregulated collective investment scheme as well as rights to or interests in investments that are any of the above.

The FCA has also published new webpages regarding CISs, including an overview of the regulation of AUTs, ICVCs and authorised contractual schemes (ACSs), as well as information on how to get a CIS authorised in the UK and approval for an alteration to an authorised CIS.

Here are the new webpages published by the FCA: