What Are Collective Investment Schemes?
A Collective Investment Scheme (CIS) is a type of investment vehicle, which gives investors the opportunity to invest in the stock market without directly owning stocks and shares. This works by allowing multiple investors to pool their money in a single fund. A professional fund manager then selects which assets and securities to invest the fund's money in on behalf of investors.
CIS can invest in a wide range of asset classes including, among others:
- bonds or gilts;
- other Collective Investment Schemes; and
- financial derivative instruments.
The most common types of CIS are:
- authorised unit trusts;
- open-ended investment companies (OEICs);
- investment trusts.
The first investment trust was created in 1868 by F&C. The origins of unit trusts can also be traced back to the 19th century but they did not appear in the United Kingdom until 1931. Unit trusts have a more flexible structure than investment trusts. This is because they are open-ended whereas investment trusts are closed-ended. This means that the size of a unit trust can increase or decrease as money is invested or taken out of the fund. Therefore, there is no limit to either the size of a unit trust or its life span. Investment trusts, on the other hand, are closed-ended. This means that a limited number of shares are bought by a trust upon creation and are held until the trust is liquidated. So during the life of the trust, it is very rare to buy or redeem shares.
OEICs were introduced in the UK for the first time in 1997. Like unit trusts, they have an open-ended structure. In reality, there is very little difference between OEICs and unit trusts except that OEICs are structured as companies rather than trusts, and investors buy shares rather than units.
In 2013, the UK introduced a new type of CIS, the Authorised Contractual Scheme ("ACS"). ACS are authorised tax transparent funds.
Disclaimer: The material and information contained on this website is provided for general information only. DATA does not provide any investment advice and you are recommended to obtain professional financial advice where appropriate.