Collective Investment Fund - Explained
What is a Collective Investment Fund?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is a Collective Investment Fund?
A Collective Investment Fund (CIF) is a fund made up of a group accounts or funds pooled and held by a trust or bank. CIF is otherwise called a collective investment trust (CIT), it is an investment instrument available to qualified retirement plans. In a CIF, funds are pooled fro the public to realize an investment fund which is then managed and invested in other types of financial or non-financial instruments. The assets, funds or accounts held in a CIF or CIT are commingled and must meet the specified criteria by 12 CFR 9.18.
How Does a Collective Investment Fund Work?
A collective investment fund contains a pool of assets or accounts held by a bank or trust. The bank has a fiduciary responsibility to the CIF, it is in charge of management and investment of the fund into financial and non-financial products. To investors and end-users, purchase of investment in a CIF/CIT is a better alternative to savings because through CIF, the users have access to markets they would have otherwise not had access to with their savings account. The property or returns in a CIF belong to the collective investors whose funds or accounts were pooled.
Advantages of Collective Investment Fund - CIF
In the financial users and private investors perspective, a Collective Investment Fund (CIF) has many advantages, the major ones include the following;
- Access to bigger markets that individual investors would not have access to ordinarily.
- Professional management and investment of pooled funds.
- Transparency and accountability of the fund handler which is commonly a bank.
- A guarantee of high returns of profits on investment.
- Favorable and preferential tax treatment.
- Reduction of investment costs.
- Less cumbersome management of investments.
Investment Policy of a Collective Investment Fund - CIF
There are certain policies that bind the operations of a collective investment fund, these policies vary from country to country but there are some common policies. Regardless of the country a collective investment fund is being operated, it must abide by these three major principles;
- Transparency
- Diversification of risk
- Liquidity