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 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.
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.”
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 unit holders 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.