What are Collective Investment Funds?

Malcolm Tatum

Collective investment funds are funds composed of a group of assets and managed by a bank or a trust company. The assets may be a group or collection of retirement, pension plan, or profit sharing plan trusts that are gathered for some specific purpose, such as reinvestment. This particular strategy is often used to create an investment portfolio that is highly diversified and able to perform well in a wide range of economic situations.

A bank or trust company may manage a group of assets referred to as collective investment funds.
A bank or trust company may manage a group of assets referred to as collective investment funds.

While there are several ways to structure collective investment funds, most types are grouped into two categories. An A1 fund is a collection of investments that are brought together for the express purpose of creating a diversified reinvestment trust and generating ongoing revenue for investors with a stake in the fund. The A2 fund also has the goal of earning some type of return, but is usually composed of assets that are considered exempt from taxation by local and national revenue agencies.

One of the benefits of collective investment funds is the ability to manage the collected assets with a greater degree of efficiency. By pooling all the various trusts, mutual funds, and other assets into one group, it is possible to lower the cost of managing those assets. By essentially creating a master trust account to house the assets, it is possible to authorize an executor or administrator to manage the assets within the scope of any provisions related to the collection and the standards set by governmental regulatory agencies.

Collective investment funds are somewhat like mutual funds, in that both approaches do require pooling of assets into a common fund. One of the key differences are the criteria that must be met in order to participate in each of these types of investment vehicles. With most mutual funds, the ability to contribute a minimum amount to the fund is often the deciding factor. With collective investment funds, potential investors must comply with a broader range of qualifications and must continue to meet those standards in order to retain involvement in the vehicle. The exact criterion that must be met to participate in a collective investment fund is determined by the governmental regulatory agency with jurisdiction.

A bank or a trust company usually administers collection investment funds. In most nations, the administrator must register the collection of funds with the governmental agency that oversees the function of investments within that nation. Compliance with regulations that are in place in that nation is essential. There are some situations in which a regulatory may make exceptions for a specific pool of collective investment funds, especially if investors are limited to only customers that are covered in the terms of the exemption.

You might also Like

Readers Also Love

Discuss this Article

Post your comments
Forgot password?