What is a collective investment scheme? How do they work?
Collective Investment Schemes are defined by MAS as an arrangement involving pooled funds by participants (investors) which is managed in a way that generates profit/income. They are more commonly known as investment funds.
A collective investment scheme is an arrangement in respect of any property which satisfies the following elements:
- Participants have no day-to-day control over management of the property
- Either or both characteristics are present:
- Property is managed as a whole by or on behalf of the manager
- Participants’ contributions are pooled, and profits/income from which payments are to be made are pooled
- (Purported) purpose or effect of the arrangement is to enable participants to participate in or receive profits/income arising from the property
Collective Investment Schemes are more frequently known as ‘investment funds’, ‘mutual funds’ or simply ‘funds’. They invest in assets, such as bonds, equities or cash. The collective assets owned by the fund are called a portfolio, and they are managed by a professional fund manager.
Your money is pooled together with that of other investors, and spread over the whole range of assets within the fund. Your investment in a fund is divided into units; the number of units held represents your proportionate ownership of the fund’s overall assets, and the income and capital growth that those assets may generate.
Collective Investment Schemes, also commonly known as funds, are formally defined and regulated under the Securities and Futures Act. Like shares in a company, a CIS may offer “units” in a scheme to investors that represent ownership in the funds assets.