What is a 'Collective Investment Fund'

A collective investment fund (CIF), also known as a collective investment trust, is operated by a bank or trust company and handles a group of pooled trust accounts. Collective investment funds groups assets from individuals and organizations to develop a larger, diversified portfolio. There are two types of funds: A1 funds are grouped assets contributed for the purpose of investment or reinvestment, and A2 funds are grouped assets contributed by trusts exempt from federal income tax.

BREAKING DOWN 'Collective Investment Fund'

The primary objective of a collective fund is, through economies of scale, to lower costs with a combination of profit-sharing funds and pensions. The pooled funds are grouped into a master trust account that is controlled by the bank, which acts as a trustee or executor.

The bank, acting as a fiduciary, has a legal title to the assets in the fund; however, those participating in the fund own the benefits of the fund’s assets. They are, in effect, the beneficial owners of the assets. Participants don’t own any specific asset held in the CIF but have an interest in fund’s aggregated assets.

CIFs are specifically designed by a bank to enhance its effective investment management by gathering the assets from various accounts into one fund that is directed with a chosen investment strategy. By combining different fiduciary assets in a single account, the bank is typically able to substantially decrease its operational and administrative expenses. The designated investment strategy structure is designed to maximize investment performance.

Examples of collective investment funds are the Invesco Global Opportunities Trust and the Invesco Balanced-Risk Commodity Trust, offered by Invesco Trust Company.

Regulation and History

There are several names used to refer to a collective investment fund, which is the official term used in a comptroller’s handbook. Other names include common trust funds, common funds, collective trusts and commingled trusts. In essence, CIFs are funds that are not regulated by the Securities Exchange Commission (SEC) or the Investment Act of 1940, as mutual funds are, but are instead under the regulatory authority of the Office of the Comptroller of the Currency (OCC). Although CIFs are pooled funds just as mutual funds are, in contrast to mutual funds, CIFs are unregistered investment vehicles, more like hedge funds.

The first collective fund was created in 1927. When the stock market crashed two years later, the perceived contribution of these pooled funds to the crash led to severe restrictions on them. Banks were restricted to only offering CIFs to trust clients and through employee benefit plans. The Pension Protection Act of 2006 was a boost for CIFs, as it effectively made them the default option for defined contribution plans. CIFs frequently appear in 401(k) plans as a stable value option.

RELATED TERMS
  1. Trust Fund

    A trust fund is a fund comprised of a variety of assets intended ...
  2. Commingled Trust Fund

    Investment assets that are combined together under a common investment ...
  3. Active Trust

    A trust where the trustee is held accountable for additional ...
  4. Unit Trust - UT

    An unincorporated mutual fund structure that allows funds to ...
  5. Trust Company

    A legal entity that acts as fiduciary, agent or trustee on behalf ...
  6. Investment Company

    A corporation or trust engaged in the business of investing the ...
Related Articles
  1. Managing Wealth

    Surprising Uses for Trust Funds

    Here are five common situations where a trust fund makes financial sense.
  2. Investing

    A Look Into Creating a Trust Fund With ETFs (VCIT, SDIV)

    Learn the basics of how a trust works and the two most common types. Discover how to use ETFs to fund a trust and the different strategies.
  3. Financial Advisor

    Should You Put Your Faith In A Trust?

    Many institutions want a piece of your portfolio, but trusts can provide a one-stop shop.
  4. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  5. Investing

    Unit Investment Trusts Market: 3 Trends in 2016

    Learn more about unit investment trusts (UITs), and discover some of the most common trends in the UIT market to date in the year 2016.
  6. Investing

    Explaining Cost, Insurance and Freight (CIF)

    Cost, Insurance and Freight, or CIF, is a trade term that means the seller must pay the costs needed to transport goods to a port of destination.
  7. Retirement

    How To Set Up A Trust Fund In The U.K.

    A guide to the whys and wherefores of setting up this most versatile of estate-planning instruments in the United Kingdom.
  8. Managing Wealth

    Surprising Ways a Trust Could Help Your Family

    Everything you always wanted to know about setting up trusts, in handy glossary form.
  9. Investing

    Pooled Funds Minimize Risk and Reward

    Pooled funds combine money from many individuals to invest in vehicles like a mutual fund or a pension fund.
  10. Financial Advisor

    How Trust Funds Can Safeguard Your Children

    Certain types of trust funds can help to protect your assets from bankruptcies and civil actions, and can be established to safeguard your children and designated beneficiaries.
RELATED FAQS
  1. How is the Social Security trust fund invested?

    Read about how the Social Security trust fund is set up, paid into, borrowed from and invested by the U.S. government and ... Read Answer >>
  2. What is the difference between revocable and irrevocable intervivos trusts?

    Learn what an inter-vivos trust is, the difference between an irrevocable and a revocable inter-vivos trust, and why it is ... Read Answer >>
Hot Definitions
  1. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  2. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  3. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  4. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  5. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  6. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
Trading Center