Collective Investment Fund (CIF)

What Is a Collective Investment Fund?

A collective investment fund (CIF), otherwise called a collective investment trust (CIT), is a group of pooled accounts held by a bank or trust company. The financial institution groups assets from individuals and organizations to foster a single larger, diversified portfolio. There are two types of collective investment funds:

A1 funds, grouped assets contributed for investment or reinvestment
A2 funds, grouped assets contributed for retirement, profit sharing, stock bonus, or different substances exempt from federal income tax

CIFs are generally available to the individual just by means of employer-sponsored retirement plans, pension plans, and insurance companies. Different names for them incorporate common trust funds, common funds, collective trusts, and commingled trusts.

How a Collective Investment Fund Works

CIFs are funds not regulated by the Securities Exchange Commission (SEC) or the Investment Act of 1940 yet operate rather under the regulatory authority of the Office of the Comptroller of the Currency (OCC). In spite of the fact that CIFs are pooled funds just as mutual funds are, CIFs are unregistered investment vehicles, more similar to hedge funds.

The primary objective of a collective investment fund is, using economies of scale, to bring down costs with a combination of profit-sharing funds and pensions. The pooled funds are grouped into a master trust account — legally speaking, CIFs are set up as trusts — that is controlled by the bank or trust company, which acts as a trustee or executor. Be that as it may, numerous financial institutions use investment companies or mutual fund companies as sub-consultants to deal with the portfolios.

For instance, Invesco Trust Company runs the Invesco Global Opportunities Trust and the Invesco Balanced-Risk Commodity Trust. Fidelity, Franklin Templeton, and T. Rowe Price likewise run CIFs.

CIF Investments

The bank, acting as a fiduciary, has a legal title to the assets in the fund. Be that as it may, those participating in the fund own any benefits of the fund's assets. They are, in effect, the beneficial owners of the assets. Participants own no specific asset held in the CIF however have an interest in the fund's accumulated assets. A CIT can invest in just about any sort of asset including stocks, bonds commodities, derivatives, and, surprisingly, mutual funds.

CIFs are specifically planned by a bank to improve its effective investment management by gathering the assets from different accounts into one fund that is directed with a picked investment strategy and objective. By consolidating different fiduciary assets in a single account, the bank is ordinarily able to substantially diminish its operational and administrative expenses. The designated investment strategy structure is intended to expand investment performance.

As per a Cerulli Associates, a Singapore-based research firm, study, starting around 2016, roughly $2.8 trillion was invested in CIFs, and that figure was estimated to hit $3 trillion toward the finish of 2018.

History of Collective Investment Trusts

The primary collective investment fund was made in 1927. A survivor of terrible timing, when the stock market declined two years after the fact, the perceived contribution of these pooled funds to the following financial difficulties prompted extreme limitations on them. Banks were restricted to just offering CIFs to trust clients and through employee benefit plans.

The situation started to change in the 21st century. CIFs began to be listed on electronic mutual fund trading platforms, which increased their visibility and frequency of trades. The Pension Protection Act of 2006 was a lift for CIFs, as it effectively made them the default option for defined contribution plans. At last, target-date funds (TDFs) became famous, and the CIF structure is particularly appropriate to this kind of long-term vehicle.

How CIFs Differ From Mutual Funds

Albeit both offer various investment options and comprise of a basket of assets. CIFs vary from mutual funds in more than one way.

Pros

Diversified portfolio
Lower management and distribution costs
Held to bank fiduciary standard
Tax-exempt earnings

Cons

Available only through employer retirement plans
Performance difficult to track
Less transparent operations
Fewer investment options

- Maybe most prominently, CIF will in general have lower operating costs than mutual funds, since they don't need to meet Securities and Exchange Commission (SEC) reporting prerequisites — giving outlines or introduce independent boards of directors, for instance. - CIFs are likewise offered simply by banks and trust companies for retirement plans and not available to the overall population, dissimilar to mutual funds, which investors can purchase straightforwardly or through a financial intermediary, like a broker. - The oversight of CIFs is generally delivered by managers employed by the trustee, while mutual funds are driven either by a mutual fund manager or group of managers as approved by a board of directors. - CIFs can't be turned over into IRAs or different accounts.

True Example

Today, CIFs as often as possible show up in 401(k) plans as a stable value option. As per a report on "TheStreet.com," an Investment Company Institute report found that their share of 401(k) plan assets increased from 6% in 2000 to an estimated 19% in 2016. Data from institutional investment counseling firm Callan contained in the 2018 Defined Contribution Trends Survey found that the presence of CIFs increased from 43.8% in 2011 to 65% in 2017.

Features

A collective investment fund (CIF) is a tax-exempt, pooled investment fund, available chiefly in employer-sponsored retirement plans.
While they are comparative in structure to mutual funds, CIFs are unregulated by the Securities and Exchange Commission (SEC).
CIFs have a developing presence in 401(k) plans, due by and large to their lower management and operating costs.
CIFs are not Federal Deposit Insurance Corporation (FDIC) insured.