Collective investment schemes (CIS) have been around for a while, with the first such UK scheme created by F&C in 1868. Read on for an introduction to exactly what they are, and how they work…
What is a collective investment scheme?
A collective investment scheme is a type of investment vehicle. Also known as “pooled investments”, these schemes enable people to invest in the stock market without themselves owning stocks and shares, by pooling their money in a fund with other investors.
On the behalf of these investors, a professional fund manager will then decide how to invest the money that has been pooled. This investment could be in a number of different asset classes, from shares, bonds and gilts to cash, financial derivative instruments, or other collective investment schemes.
There are three main types of collective investment schemes that investors may choose, namely:
- Investment trusts
- Authorised unit trusts
- Open-ended investment companies (OEICs)
Why choose a collective investment scheme?
There are many reasons why investors opt to place their funds in a collective investment scheme:
- Diversification: Spreading risk across various geographical areas, asset types and companies.
- Ease of use: The fund manager will do most of the work for you.
- Professional support and advice: Your dedicated fund manager will be doing the research and have the market knowledge that is needed to know what to buy and sell.
- Plenty of choice: Decide which geographical regions and which sectors you want to focus on.
What are the risks of collective investment schemes?
Ultimately, any investment type comes with an associated level of risk – all investments will fluctuate over time. There are various risks involved in CIS investment:
- Market risk
- Inflation risk
- Credit risk
- Foreign exchange risk
In addition, there will be further risk involved if your money is invested in an unregulated collective investment scheme (UCIS). These schemes are unregulated by the FCA, and cannot be promoted to the public. To check whether or not a scheme is unregulated, click here.
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