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pean collective investments subsection 13 1 france and luxembourg 13 2 netherlands and belgium 13 3 poland 13 4 ukraine 13 5 greece 13 6 switzerland 14 australian collective investments 15 offshore collective investments 16 see also 17 references 18 external links toggle the table of contents investment fund 42 languages العربية azərbaycanca беларуская тарашкевіца беларуская български bosanski català čeština dansk deutsch ελληνικά español eesti euskara فارسی suomi français gaeilge עברית हिन्दी hrvatski հայերեն italiano 日本語 한국어 lëtzebuergesch lietuvių македонски nederlands norsk bokmål polski português română русский slovenčina српски srpski svenska türkçe українська tiếng việt 粵語 中文 edit links article talk english read edit view history tools tools move to sidebar hide actions read edit view history general what links here related changes upload file permanent link page information cite this page get shortened url switch to legacy parser print export download as pdf printable version in other projects wikimedia commons wikidata item appearance move to sidebar hide from wikipedia the free encyclopedia way of investing money alongside other investors the values and performance of collective funds are listed in newspapers financial market participants organisations credit unions development finance institution insurance companies investment banks investment funds pension funds prime brokers trusts terms angel investor bull finance financial market participants corporate finance personal finance public finance banks and banking financial analyst financial planner financial regulation fund governance stock market super angel v t e an investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage these advantages include an ability to hire professional investment managers who may offer better returns and more adequate risk management benefit from economies of scale i e lower transaction costs increase the asset diversification to reduce some unsystematic risk it remains unclear whether professional active investment managers can reliably enhance risk adjusted returns by an amount that exceeds fees and expenses of investment management terminology varies with country but investment funds are often referred to as investment pools collective investment vehicles collective investment schemes managed funds or simply funds the regulatory term is undertaking for collective investment in transferable securities or short collective investment undertaking cf law an investment fund may be held by the public such as a mutual fund exchange traded fund special purpose acquisition company or closed end fund 1 or it may be sold only in a private placement such as a hedge fund or private equity fund 2 the term also includes specialized vehicles such as collective and common trust funds which are unique bank managed funds structured primarily to commingle assets from qualifying pension plans or trusts 3 investment funds are promoted with a wide range of investment aims either targeting specific geographic regions e g emerging markets or developed markets or specified industry sectors e g technology depending on the country there is normally a bias towards the domestic market due to familiarity and the lack of currency risk funds are often selected on the basis of these specified investment aims their past investment performance and other factors such as investment fees history edit further information economic history of the dutch republic financial history of the dutch republic and mutual fund history the first recorded professionally managed investment funds or collective investment schemes such as mutual funds were established in the dutch republic 4 5 amsterdam based businessman abraham van ketwich also known as adriaan van ketwich is often credited as the originator of the world s first mutual fund 6 law edit the term collective investment scheme is a legal concept deriving initially from a set of european union directives to regulate mutual fund investment and management the undertakings for collective investment in transferable securities directives 85 611 eec as amended by 2001 107 ec and 2001 108 ec typically known as ucits for short created an eu wide structure so that funds fulfilling its basic regulations could be marketed in any member state the basic aim of collective investment scheme regulation is that the financial products that are sold to the public are sufficiently transparent with full disclosure about the nature of the terms 7 in the united kingdom the primary statute is the financial services and markets act 2000 where part xvii sections 235 to 284 deal with the requirements for a collective investment scheme to operate it states in section 235 that a collective investment scheme means any arrangements with respect to property of any description including money the purpose or effect of which is to enable persons taking part in the arrangements whether by becoming owners of the property or any part of it or otherwise to participate in or receive profits or income arising from the acquisition holding management or disposal of the property or sums paid out of such profits or income structure edit financial market participants organisations credit unions development finance institution insurance companies investment banks investment funds pension funds prime brokers trusts terms angel investor bull finance financial market participants corporate finance personal finance public finance banks and banking financial analyst financial planner financial regulation fund governance stock market super angel v t e constitution and terminology edit collective investment vehicles may be formed under company law by legal trust or by statute the nature of the vehicle and its limitations are often linked to its constitutional nature and the associated tax rules for the type of structure within a given jurisdiction typically there is a fund manager or investment manager who manages the investment decisions a fund administrator who manages the trading reconciliations valuation and unit pricing a board of directors or trustees who safeguard the assets and ensure compliance with laws regulations and rules the shareholders or unitholders who own or have rights to the assets and associated income a marketing or distribution company to promote and sell shares units of the fund please see below for general information on specific forms of vehicles in different jurisdictions net asset value edit main article net asset value the net asset value nav is the value of a vehicle s assets minus the value of its liabilities the method for calculating this varies between vehicle types and jurisdiction and can be subject to complex regulation citation needed open end fund edit main articles open end fund and mutual fund an open end fund is equitably divided into shares which vary in price in direct proportion to the variation in value of the fund s net asset value each time money is invested new shares or units are created to match the prevailing share price each time shares are redeemed the assets sold match the prevailing share price in this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets closed end fund edit a closed end fund issues a limited number of shares or units in an initial public offering or ipo or through private placement if shares are issued through an ipo citation needed they are then traded on a stock exchange or directly through the fund manager to create a secondary market subject to market forces the price that investors receive for their shares may be significantly different from net asset value nav it may be at a premium to nav i e higher than nav or more commonly at a discount to nav i e lower than nav in the united states at the end of 2018 there were 506 closed end mutual funds with combined assets of 0 25 trillion accounting for 1 of the u s industry 8 exchange traded funds edit main article exchange traded fund exchange traded funds etfs combine characteristics of both closed end funds and open end funds they are structured as open end investment companies or uits etfs are traded throughout the day on a stock exchange an arbitrage mechanism is used to keep the trading price close to net asset value of the etf holdings at the end of 2018 there were 1 988 etfs in the united states with combined assets of 3 3 trillion accounting for 16 of the u s industry 8 unit investment trusts edit main article unit investment trust unit investment trusts uits are issued to the public only once when they are created uits generally have a limited life span established at creation investors can redeem shares directly with the fund at any time similar to an open end fund or wait to redeem them upon the trust s termination less commonly they can sell their shares in the open market unlike other types of mutual funds unit investment trusts do not have a professional investment manager their portfolio of securities is established at the creation of the uit in the united states at the end of 2018 there were 4 917 uits with combined assets of less than 0 1 trillion 8 gearing and leverage edit some collective investment vehicles have the power to borrow money to make further investments a process known as gearing or leverage if markets are growing rapidly this can allow the vehicle to take advantage of the growth to a greater extent than if only the subscribed contributions were invested however this premise only works if the cost of the borrowing is less than the increased growth achieved if the borrowing costs are more than the growth achieved a net loss is achieved this can greatly increase the investment risk of the fund by increased volatility and exposure to increased capital risk gearing was a major contributory factor in the collapse of the split capital investment trust debacle in the uk in 2002 9 10 11 availability and access edit collective investment vehicles vary in availability depending on their intended investor base public availability vehicles are available to most investors within the jurisdiction they are offered some restrictions on age and size of investment may be imposed limited availability vehicles are limited by laws regulations and or rules to experienced and or sophisticated investors and often have high minimum investment requirements private availability vehicles may be limited to family members or whoever set up the fund they are not publicly traded and may be arranged for tax or estate planning purposes limited duration edit some vehicles are designed to have a limited term with enforced redemption of shares or units on a specified date unit or share class edit many collective investment vehicles split the fund into multiple classes of shares or units the underlying assets of each class are effectively pooled for the purposes of investment management but classes typically differ in the fees and expenses paid out of the fund s assets these differences are supposed to reflect different costs involved in servicing investors in various classes for example one class may be sold through a stockbroker or financial adviser with an initial commission front end load such a class might be called retail shares another class may be sold with no commission load direct to the public such a class is called direct shares still a third class might have a high minimum investment limit and only be open to financial institutions such a class is called institutional shares in some cases by aggregating regular investments by many individuals a retirement plan such as a 401 k plan may qualify to purchase institutional shares and gain the benefit of their typically lower expense ratios citation needed even though no members of the plan would qualify individually some of the fund classes class a class b class c class d class e class w class z advantages edit diversity and risk edit one of the main advantages of collective investment is the reduction in investment risk capital risk by diversification an investment in a single equity may do well but it may collapse for investment or other reasons e g marconi if your money is invested in such a failed holding you could lose your capital by investing in a range of equities or other securities the capital risk is reduced the more diversified your capital the lower the capital risk this investment principle is often referred to as spreading risk collective investments by their nature tend to invest in a range of individual securities however if the securities are all in a similar type of asset class or market sector then there is a systematic risk that all the shares could be affected by adverse market changes to avoid this systematic risk investment managers may diversify into different non perfectly correlated asset classes for example investors might hold their assets in equal parts in equities and fixed income securities reduced dealing costs edit if one investor had to buy a large number of direct investments the amount this person would be able to invest in each holding is likely to be small dealing costs are normally based on the number and size of each transaction therefore the overall dealing costs would take a large chunk out of the capital affecting future profits reduction or elimination of requirement to spend personal time investing edit an investor that chooses to use an investment fund as a way to invest his or her money does not need to spend as much personal time making investment decisions doing investment research or performing actual trades instead these actions and decisions will be done by one or more fund managers managing the investment fund disadvantages edit costs edit the fund manager managing the investment decisions on behalf of the investors will of course expect remuneration this is often taken directly from the fund assets as a fixed percentage each year or sometimes a variable performance based fee if the investor managed their own investments this cost would be avoided often the cost of advice given by a stockbroker or financial adviser is built into the vehicle often referred to as commission or load in the u s this charge may be applied at the start of the plan or as an ongoing percentage of the fund value each year while this cost will diminish your returns it could be argued that it reflects a separate payment for an advice service rather than a detrimental feature of collective investment vehicles it is often possible to purchase units or shares directly from the providers without bearing this cost lack of choice edit although the investor can choose the type of fund to invest in they have no control over the choice of individual holdings that make up the fund loss of owner s rights edit if the investor holds shares directly the investor ...