A collective investment scheme pools funds from multiple investors to invest in diversified assets, managed by professional managers. It offers benefits of diversification, professional management, liquidity, and economies of scale.
In finance and wealth management, CISs are commonly used as an efficient way to gain exposure to a broad range of asset classes without the need for individual investors to directly purchase and manage these assets. The pooled structure provides access to professionally managed portfolios with potentially lower fees, increased diversification, and reduced risk compared to investing in individual securities. Regulatory frameworks govern these schemes to ensure transparency, fiduciary responsibility, and investor protection. CISs may be open-ended, allowing investors to enter and exit at the net asset value, or closed-ended, with fixed capital and traded on secondary markets.
In managing complex wealth structures, CISs provide a scalable, cost-efficient mechanism to access both traditional and alternative asset classes, facilitating better risk management and capital growth potential. The professional management aspect is particularly valuable in adapting to market dynamics, economic changes, and regulatory shifts, allowing family offices and investment advisors to focus on holistic wealth planning and preservation while relying on CIS expertise for execution.
An investment advisor pools $5 million from several clients into a CIS that invests in a diversified portfolio of global equities and bonds. The CIS’s professional fund manager allocates the assets aiming to balance risk and return. Suppose the CIS generates a 7% annual return; an investor with a 10% share in the scheme would see their investment grow by approximately $35,000. This pooled approach simplifies access to a diversified portfolio that otherwise would require significant effort and capital to manage individually.
Mutual Fund
A mutual fund is a type of collective investment scheme which pools money from investors to invest primarily in stocks, bonds, or other securities, and is typically open-ended, allowing investors to buy or redeem shares at the fund’s net asset value. While all mutual funds are collective investment schemes, not all CISs are mutual funds as CIS encompasses other structures like unit trusts or closed-end funds.
What types of collective investment schemes are available?
Collective Investment Schemes include mutual funds, unit trusts, investment trusts, ETFs, and closed-end funds, each with varying structures, liquidity features, and regulatory frameworks tailored to different investor needs.
How does a collective investment scheme differ from directly owning securities?
CISs allow investors to own units or shares in a managed pool of assets rather than individual securities, providing diversification, professional management, and easier access to a broad range of investments, whereas direct ownership requires purchasing and managing each security individually.
Are investments in collective investment schemes liquid and how often can I redeem my investment?
Liquidity depends on the CIS structure; open-ended funds like mutual funds and ETFs typically offer daily liquidity based on net asset value, while closed-ended funds or certain unit trusts may have limited liquidity or specific redemption terms.
