Collective Investment Schemes (CIS)

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:

• Stocks and shares
• gilts and bonds
• cash
• other Collective Investment Schemes
• financial derivative instruments.

What types of collective investment schemes are there?

There is a variety of collective investment schemes you can choose from. Here is how some of the most popular work.

Unit Trust

A unit trust is a mutual fund managed by trustees. You pool your money with that of other people to generate capital for the trust. A fund manager then invests this capital across various assets, aiming to spread and reduce risk. The fund is then divided up into equal-sized ‘units’. The number of units you hold will depend on how much money you’ve invested. If the value of the pooled investments grows, the value of your units goes up and vice versa. You can sell your units when you wish, aiming for a higher price than you paid.

Open Ended Investment Companies (OEICs)

OEICs work in a similar way to unit trusts, except that OEICs are legally constituted as limited companies. They’re not trusts, so therefore they have no trustee. Instead, OEICs have a depository which holds the securities and has similar duties to a unit trust trustee.

Many OEICs operate as ‘umbrella funds’, meaning that an OEIC can set up sub-funds without gaining individual authorisation for individual sub-funds.

Exchange Traded Fund (ETF)

When you invest in an ETF, you are one of many people pooling their money. This money is generally invested in a ‘basket’ of securities – stocks, bonds, and commodities – traded on a stock exchange. ETFs generally try to invest broadly in a way that tracks a market segment. This could be an index like the FTSE 100 or S&P or they might track bonds, specific industries, commodities, or currencies. The big difference between ETFs and other collective investment schemes is that they don’t need a fund manager – they are passive investments. This means they can be cheaper to invest in.

Investment Trust

These are companies that are listed on the London Stock Exchange with the sole purpose of investing shareholders’ funds in shares of other companies or securities.

An investment trust pools investor funds together to make investments in a range of companies. Investment trusts are based upon a fixed amount of capital which is divided into shares, making investment trusts closed ended. Once the capital has been divided into shares, investors can then purchase the shares.

They can be more volatile as they are able to borrow money for their investments and due to the ability to invest in unquoted or unlisted companies not trading on the stock market.

Unregulated Collective Investment Scheme (UCIS)

If a collective investment scheme is not authorised or recognised by the FCA they’re referred to as an unregulated collective investment scheme. UCIS are not subject to the same restrictions to investment power and how they’re run. They can often carry a large amount of risk and, as a Financial Adviser we would not be able to recommend any type of Unregulated investment fund. The FCA has a register where you can check whether a CIS is authorised or recognised.

UCIS do not have to be based in the UK and can dedicate money to many different enterprises, including less common investment products and activities, such as foreign property. These schemes can’t be promoted to the general public but can be proposed to some limited types of investors.