Investment fund
Depending on the country there is normally a bias towards the domestic market due to familiarity, and the lack of currency risk.
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".
Collective investment vehicles may be formed under company law, by legal trust or by statute.
A closed-end fund issues a limited number of shares (or units) in an initial public offering (or IPO) or through private placement.
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.
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.
Gearing was a major contributory factor in the collapse of the split capital investment trust debacle in the UK in 2002.
Many collective investment vehicles split the fund into multiple classes of shares or units.
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.
This is often taken directly from the fund assets as a fixed percentage each year or sometimes a variable (performance based) fee.
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.
If the investor holds shares directly, he has the right to attend the company's annual general meeting and vote on important matters.
Examples In most instances whatever the investment aim the fund manager will select an appropriate index or combination of indices to measure its performance against; e.g. FTSE 100.
The aim of most funds is to make money by investing in assets to obtain a real return (i.e. better than inflation).
Active management—Active managers seek to outperform the market as a whole, by selectively holding securities according to an investment strategy.
Another example of passive management is the "buy and hold" method used by many traditional unit investment trusts where the portfolio is fixed from outset.
An example of active management success When analysing investment performance, statistical measures are often used to compare 'funds'.
These statistical measures are often reduced to a single figure representing an aspect of past performance: Depending on the nature of the investment, the type of 'investment' risk will vary.
For an open-end fund, there may be an initial charge levied on the purchase of units or shares this covers dealing costs, and commissions paid to intermediaries or salespeople.
When heavy selling occurs units are liquidated from the managers box to protect the existing investors from the increased dealing costs.
A dilution levy can be charged at the discretion of the fund manager, to offset the cost of market transactions resulting from large un-matched buy or sell orders.
A dilution levy is therefore applied where appropriate and paid for by the investor in order that large single transactions do not reduce the value of the fund as a whole.
(Mutual Fund Management Company S.A.) to spread their money in many different investment products such as shares, bonds, deposits, repo etc.
In Greece co-unitholders, which are persons participating in the same units of M/F have exactly the same rights as the unitholder (according to the Law for the deposits in common account 5638/1932).
The property of each M/F by law have to be under the control of a bank legally operating in Greece (Greek or foreign).
