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. Commingled Trust Fund

    Investment assets that are combined together under a common investment ...
  2. Unit Trust - UT

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

    A legal entity that acts as fiduciary, agent or trustee on behalf ...
  4. Investment Fund

    A supply of capital belonging to numerous investors that is used ...
  5. Alimony Substitution Trust

    A trust agreement in which a divorced person agrees to pay spousal ...
  6. Equity Unit Investment Trust

    A registered trust in which investors purchase units from a fixed ...
Related Articles
  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Retirement

    How to Set up a Trust Fund If You're Not Rich

    You don't need to be wealthy to create your own trust fund. Here's why and how to go about it.
  6. 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.
  7. 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.
  8. Financial Advisor

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  9. Financial Advisor

    Irrevocable Trusts: New Trends You Need to Know

    Several improvements and additional provisions have been added to irrevocable trusts in recent years making them considerably more versatile than before.
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 >>
Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an ...
  3. Salvage Value

    The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting ...
  4. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  5. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center