Collective investments

A clear definition

A Collective Investment is a kind of financial intermediary - a corporation or trust through which investors pool their assets for collective investment. Investors buy shares in a Collective Investment fund, which in turn invests in various types of securities. Almost every Collective Investment is part of a trust complex - a group of trusts connected to the same investment adviser. Other types of financial intermediaries include commercial banks and insurance companies.

Globally, Collective Investments is one of the fastest growing savings vehicles. In the US, fund assets have soared from less than $150 billion in 1980 to more than $4 trillion by the end of 1997. Since then, Collective Investment assets have exceeded bank deposits.

Most investors look to minimise risks and maximise returns but this combination is often difficult to achieve, and even harder to sustain. Investing through an intermediary is a favoured choice for investors because they are seen as being able to facilitate a more balanced relationship between risk and return. Also, they provide additional expertise in securities and convenience with less administration and associated costs.

Clear benefits

Affordability

Investments can be made on a monthly basis or by investing a lump sum.

Diversification

Investment takes place across diversified portfolios, lowering the overall investment risk.

Averaging

The prices at which collective investments are purchased (if made on a monthly basis) are averaged over a period of time as the stock market fluctuates. This smoothes the average cost of an investment over time.

Capital growth

Collective investments provide the potential of achieving an attractive return on capital. In general, over the longer term, equity funds have outperformed inflation.

Regular income distribution

A regular income distribution is paid either in dividends or interest income, or a combination of the two.

Flexibility

Investments can be made monthly or ´once off´. Also, additional units can be purchased or sold at any time. Settlement is usually within 24 hours. There is also the option to switch from one Collective Investment to another at any time.

Tax benefits

Capital profits are generally tax-free. Dividend income is also tax-free.

Liquidity

Units can be sold in part or in total at any time, providing liquidity. (Certain restrictions may apply to large investments).




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