Different Types of Collective Investment Schemes

A collective investment scheme is a scheme in whatever form that allows different individuals to pool their resources together for the purpose of investing their pooled funds.

Each individual holds participatory interest in the joint assets and share the risks and rewards in proportion of their participatory interest in the scheme.

The broad categorisations include:

Investment Clubs – This is an informal structure that is not registered with the regulators. Typically a group of 10-20 individuals come together under an umbrella to invest their pooled resources. Ideally, the way it should work is after the members study different investments, the group decides to buy or sell based on a majority vote of the members.

Mutual Funds – This is an open-ended investment scheme – they continue to issue new shares as investors add money to the pool, and retire shares as investors redeem. This is the most common and would typically have to be registered with the regulator.

Investment Trust – This is a close-ended investment scheme – they issue a finite number of shares to investors. They are basically like a company that exists only for the purpose of making investments. This would typically be listed on a stock exchange and trade like a regular company.

Exchange Traded Fund – This is basically a hybrid of an investment trust and a mutual fund. They are listed on a stock exchange and can issue and cancel shares as investors add or take money out of the pool respectively.

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