Collective Investment Fund - Explained
What is a Collective Investment Fund?
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Table of ContentsWhat is a Collective Investment Fund?How Does a Collective Investment Fund Work?Advantages of Collective Investment Fund - CIFInvestment Policy of a Collective Investment Fund - CIFAcademic Research on Collective Investment Fund
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;
- Diversification of risk
Academic Research on Collective Investment Fund
- Enterprise governance and investment funds in Russian privatization, Akamatsu, N. (1995). Corporate Governance in Transitional Economies. Insider Control and the Role of Banks, Washington DC, 121-183. In this paper, the author provides information about the Russian Privatization and its governance structure and also, what is the process of post-privatization restructuring. The main players are the commercial banks, the workforce of the enterprise, strategic investors and institutional investors. The focus is on the voucher investment funds of the institutional investors and its dynamic interaction with the main players. The author investigates whether the voucher investment funds should be involved in the restructuring or not.
- Biotech crowdfunding paves way for angels, Orelli, B. (2012). This research is based on the platform of French crowdfunding known as WiSEED which, in Oct 2012, 1st pronounced crowdfunding success in the biotech sector after rewarding many small investors of the state. The author calls it as it paved a way for the angels.
- Banks and mutual funds, Golter, J. W. (1995). FDIC Banking Rev., 8, 10. Mutual funds are considered as the quickest growing segment of the banking industry. The author shows different records from the history of financial services in which the mutual funds accelerated the assets in a fast turnaround. First, this study tracks the development of mutual funds. Then, it states the main functionaries, mutual funds employ. How much the banks and their affiliates provide financial services for mutual funds? The author examines the ways, the banks sell mutual funds to the customers and thus, enter the distribution channel.
- The governance of energy finance: the public, the private and the hybrid, Newell, P. (2011). Global Policy, 2, 94-105. In order to drive the energy finance to the accomplishment of policy objectives around energy sustainability, poverty and security, there is a need for effective and powerful governance systems. This paper discusses the contemporary governance nature of energy finance. It analyses several governance dimensions linked to public governance of the public and private finance and private governance of private finance. Then, it seeks evidence of important activity in all these areas. Over governance of energy finance, substantial imbalance remains there to governance for energy finance. It suggests effective and practical solutions to challenges faced by energy policy, presently.
- Developing institutional investors in People's Republic of China, Kim, Y., Ho, I. S., & Giles, M. S. (2003). World Bank Country Study Paper, 31(1), 1-80. The research has been carried out to assess the activities and existing framework of institutional investors in China. It specifies the main principles for creating a strong institutional base moving forward. The institutional investors of China include companies of life insurance, managers of pension and investment fund, TICs (Trust & Investment Companies) and security firms. On average, the institutionally managed assets ratio in China is small than developed markets comprising nearly 10% of Gross Domestic Product. Unregulated funds that are placed privately are, most probably, of equal size.
- Governance systems for collective investment schemes in OECD countries, Thompson, J. K., & Choi, S. M. (2001). Occasional paper, (1). This paper lays stress on the governance and legal structure of Collective Investment Schemes (CIS), specifically, strategies to guarantee the investors protection and eliminate conflicts of interest. This research covers organization and supervisory standards of CIS in OECD member countries (Organisation for Economic Co-operation and Development), using a number of sources. OECD means an intergovernmental economic organization which contains thirty-six member countries. It was established in 1961 and its goal is to move towards economic progress.
- Why do banks need a central bank?, Goodhart, C. A. (1987). Oxford Economic Papers, 39(1), 75-89. Banks primarily have 2 functions, i.e. work on the transactions and financial services and portfolio management. The transaction services are still performed by many other institutions, including credit card companies other than banks, giro and post office. They do not need to be supervised by the Central Bank. In this article, the author presents solid arguments on why the banks require a central bank and why can they not perform their activities without it. He proposes that it is perfectly possible and safer for transaction services to be performed by quite different financial intermediaries.
- The performance of separate accounts and collective investment trusts, Elton, E. J., Gruber, M. J., & Blake, C. R. (2013). Review of Finance, 18(5), 1717-1742. The SMAs (Separately Managed Accounts) and CIT (Collective Investment Trusts) have great importance, but still, their performance and features need more significance. The performance of SMAs are same as index funds rather better than mutual funds that are actively managed. Management provides a benchmark for every separate account. When the investors use this benchmark selected by the management, performance is fairly overstated. Investors respond to performance differences from the benchmark which is known as MPB (Management Preferred Benchmark) in selecting among SMAs. The authors present variables which elaborate the cross-section of cash flows and alphas.
- Bank-Sponsered Collective Investment Funds: An Analysis of Applicable Federal Banking and Securities Laws, Wade, W. P. (1979). Bus. Law., 35, 361. This paper describes the role of CIFs (Collective Investment Funds) that are called Bank Sponsored CIFs. The author makes a detailed analysis of related laws, applicable securities and federal banking. He shares the functional and legal features of CIFs. He makes an overview of major securities and banking statutes in the light of GSBA 1933 (Glass Steagall Banking Act) and ICA 1940 (Investment Company Act). Also, what is the application of these legislations for common trust and pooled investment funds?
- Trust, collective action, and law, Kahan, D. M. (2001). BUL Rev., 81, 333. The Collective Action logic is basically related to the analysis of public policy. The individuals work consistently with the groups of similar interests which they belong to. Wealthier people rarely feel it in their favour contributing to goods that provide benefit to the whole group. Consequently, very few persons contribute sufficiently. Ultimately, the groups well-being suffers. These assumptions have dominance over the public policy analysis, even from tax collection to general communication, from street level to the internet policing.
- Of Banks and Mutual Funds: The Collective Investment Trust, Webb, J. M. (1966). Sw. LJ, 20, 334. Banks provide investment advisory services offering the hold & manage funds to the customers. National banks trust departments kept assets of above 65 billion USD in the late 1963 accounts in which they had investment responsibility. Normally, it is fulfilled in Managing Agency Account. In this arrangement, the bank undertakes to hold and manage an investment portfolio for the customer consistent to a power of attorney. Due to the expenses of brokerage, investment counsel and general management, the bank could only handle large accounts conveniently and economically. A small account cannot afford these expenses. The author evaluates the performance of mutual funds and CIT (Collective Investment Trust) keeping these facts in view.