Funds' financial information

A collective investment scheme is a way of investing money with a large number of people to participate in a wider range of investments that may not be feasible for an individual investor hence many investors share the costs of doing so. Image File history File linksMetadata No higher resolution available. ... Image File history File linksMetadata No higher resolution available. ... Invest redirects here. ...

Terminology varies with country but collective investment schemes are often referred to as managed funds, mutual funds or simply funds (note: mutual fund has a specific meaning in the US). Around the world large markets have developed around collective investment and these account for a substantial portion of all trading on major stock exchanges. The definition of a mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. ... Fund may refer to Funding, or providing capital. ...

Collective investments are promoted with a wide range of investment aims either targeting specific geographic regions (e.g. Emerging Europe) or specified themes (e.g. Technology). Depending on the country there is normally a bias towards the domestic market to reflect national self-interest, 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 fees.

Generic information - structure

Constitution and terminology

Collective investment schemes may be formed under company law, by legal trust or by statute. The nature of the scheme and its limitations are often linked to its constitutional nature and the associated tax rules for the type of structure within a given jurisdiction. Corporations law or corporate law is the law concerning the creation and regulation of corporations. ... For trusts in senses other than the legal sense, see trust; for the law of trusts in the USA see Trust (Law) USA. A trust is the legal term for a situation where one person, known as a trustee, holds assets for the benefit of another person, known as a... The Statute of Grand Duchy of Lithuania A statute is a formal, written law of a country or state, written and enacted by its legislative authority, perhaps to then be ratified by the highest executive in the government, and finally published. ...

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 trustee or board who safeguards the assets and ensures compliance with the laws 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 the fund.

Please see below for general information on specific forms of scheme in different jurisdictions. Investment management, the professional management of various securities (shares, bonds etc) and other assets (e. ...

Net asset value

The Net Asset Value or NAV is the value of a scheme's assets less the value of its liabilities. The method for calculating this varies between scheme types and jurisdiction and can be subject to complex regulation. In law, jurisdiction (from the Latin ius, iuris meaning law and dicere meaning to speak) is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area...

Open-ended fund

An open-ended fund is equitably divided into shares which vary in price in direct proportion to the variation in value of the funds 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-ended fund

A closed-ended fund issues a limited number of shares (or units) in an initial public offering (or IPO). The shares are then traded on an exchange or directly through the fund manager to create a secondary market subject to market forces. If demand for the shares are high they may trade at premium to net asset value. If demand is low they may trade at a discount to net asset value. Further share (or unit) offerings may be made by the scheme if demand is high although this may affect the share price. An initial public offering (IPO) is the first sale of a corporations common shares to public investors. ... Wikipedia does not yet have an article with this exact name. ...

The added element of market forces tends to amplify the performance of the fund increasing investment risk through increased volatility. The supply and demand model describes how prices vary as a result of a balance between product availability at each price (supply) and the desires of those with purchasing power at each price (demand). ... Generally, amplification is a basic process sometimes seen in nature, and often used in processes which involve a signal which must be made stronger. ... Volatility most frequently refers to the standard deviation of the change in value of a financial instrument with a specific time horizon. ...

Gearing and leverage

Some collective investment schemes 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 scheme 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 made.

As is no doubt clear, 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. Investment trusts are companies that invest in the shares of other companies for the purpose of acting as a collective investment scheme. ...

Limited duration

Some schemes are designed to have a limited term with enforced redemption of shares or units on a specified date.

Unit or Share Class

Many collective investment schemes 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 broker or financial adviser with an initial commission (front-end load) and might be called retail shares.
• Another class may be sold with no commission (load) direct to the public called direct shares.
• Still a third class might have a high minimum investment limit and only be open to financial institutions, and 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) even though no members of the plan would qualify individually. A Stock broker sells or buys stock on behalf of a customer. ... This article refers to advisers in the UK. Also refer Financial Planner and Financial Planning. ... The 401(k) plan is a type of retirement plan available in the United States. ...

Generic information - advantages

Diversity and risk

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, Enron). 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. On ground of assurance of the return, there are two kinds of Investments - Riskless and Risky. ... Diversification in finance involves spreading investments around into many types of investments, including stocks, mutual funds, bonds, and cash. ... The Marconi Corporation plc is a radio, telecommunication, and internet equipment manufacturing company, formerly known as The General Electric Company (GEC) and Marconi plc. ... Enron Creditors Recovery Corporation, formerly Enron Corporation, is a defunct America energy company based in Houston, Texas. ...

• 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, real estate and fixed income securities. If any one of the three is failing, then because each is non-correlated (i.e., behaves independently), by logical extension at least one of the other two is doing well. Term used in the context of financial planning, referring to the method of diversifying an investment portfolio across a wide variety of asset classes. ... The term Market Sector is used in economics and finance to describe a set of businesses that are buying and selling such similar goods and services that they are in direct competition with each other. ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprieter, partners, or shareholders). ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ... This article or section does not cite any references or sources. ...

Reduced dealing costs

If one investor were to buy a large number of direct investments, the amount they 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). Pooling money with that of other investors gives the advantage of buying in bulk, making dealing costs an insignificant part of the investment.

Generic information - disadvantages

Costs

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. Investment management is the professional management of various securities (shares, bonds etc) and other assets (e. ...

Often the cost of advice given by a stock broker or financial adviser is built into the scheme. 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 schemes. Indeed it is often possible to purchase units or shares directly from the providers without bearing this cost. Financial Advice is advice given in relation to financial matters such as investing, insurance, borrowing, saving and retirement planning. ... A Stock broker sells or buys stock on behalf of a customer. ... This article refers to advisers in the UK. Also refer Financial Planner and Financial Planning. ... The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. ... Load may mean: Look up Load in Wiktionary, the free dictionary. ... Motto: (Out Of Many, One) (traditional) In God We Trust (1956 to date) Anthem: The Star-Spangled Banner Capital Washington D.C. Largest city New York City None at federal level (English de facto) Government Federal constitutional republic  - President George Walker Bush (R)  - Vice President Dick Cheney (R) Independence from...

Lack of choice

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

If the investor holds shares directly, they may be entitled to shareholders' perks (for example, discounts on the company's products) and the right to attend the company's annual general meeting and vote on important matters. Investors in a collective investment scheme often have none of the rights connected with individual investments within the fund.

Style

Investment aims and benchmarking

Each fund has a defined investment goal to describe the remit of the investment manager and to help investors decide if the fund is right for them. The investment aims will typically fall into the broad categories of Income (value) investment or Growth investment. Income or value based investment tends to select stocks with strong income streams, often more established businesses. Growth investment selects stocks that tend to reinvest their income to generate growth. Each strategy has its critics and proponents; some prefer a blend approach using aspects of each.

Funds are often distinguished by asset-based categories such as equity, bonds, property, etc.

Also, perhaps most commonly funds are divided by their geographic markets or themes.

Examples

• The largest markets - U.S., Japan, Europe, UK and Far East are often divided into smaller funds e.g. US large caps, Japanese smaller companies, European Growth, UK mid caps etc.
• Themed funds - Technology, Healthcare, Socially responsible funds

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. This becomes the benchmark to measure success or failure against. Motto: (Out Of Many, One) (traditional) In God We Trust (1956 to date) Anthem: The Star-Spangled Banner Capital Washington D.C. Largest city New York City None at federal level (English de facto) Government Federal constitutional republic  - President George Walker Bush (R)  - Vice President Dick Cheney (R) Independence from... World map showing the location of Europe. ... The far east as a cultural block includes East Asia, Southeast Asia, Northeast Asia and South Asia. ... The Financial Times Stock Exchange Index of 100 Leading Shares, or FTSE 100 Index (pronounced footsie), is a share index of the 100 largest companies listed on the London Stock Exchange. ...

Active or passive management

Investing in real assets is generally accepted as one of the best ways to achieve real investment growth over time.

However, the methods used to make your investment are manifold and often split people into opposing camps. Assuming that it is accepted that a number of different holdings are selected to spread risk then the logical progression is to ask by what method do you select your holdings? At this point when considering Bonds or shares or any other easily definable market then two camps are formed: those who believe that it is impossible to know which stocks will do well and those who believe it is possible to predict which stocks will perform better than others. If you believe it is possible to select the stock which will do well you will actively manage your investment buying and selling upon whichever principles you decide. If you believe it is not possible to predict performance you will purchase your stock upon whichever criteria you feel is appropriate and hold those investments accordingly. In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. ... Look up share on Wiktionary, the free dictionary. ...

An example of active management success

• In 1998 Richard Branson (head of Virgin) publicly bet Nicola Horlick (head of SG Asset Management) that her SG UK Growth fund would not beat the FTSE 100 index, nor his Virgin Index Tracker fund over three years, nor achieve its stated aim to beat the index by 2% each year. He lost and paid £6,000 to charity.

To meet Wikipedias quality standards, the lead section of this article may need to be expanded. ... The Virgin Group Ltd is a group of separately run companies that each use Virgin brand of English celebrity business tycoon Sir Richard Branson. ... The Financial Times Stock Exchange Index of 100 Leading Shares, or FTSE 100 Index (pronounced footsie), is a share index of the 100 largest companies listed on the London Stock Exchange. ... In Roman times, Vestal Virgins were strictly celibate or they were punished by death. ...

Alpha, Beta, R-squared and standard deviation

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:

• Alpha represents the fund's return when the benchmark's return is 0. This shows the funds performance relative to the benchmark and can demonstrate the value added by the fund manager. The higher the 'alpha' the better the manager. Alpha investment strategies tend to favour stock selection methods to achieve growth.

• Beta represents an estimate of how much the fund will move if its benchmark moves by 1 unit. This shows the fund's sensitivity to changes in the market. Beta investment strategies tend to favour asset allocation models to achieve outperformance.

• R-squared is a measure of the association between a fund and its benchmark. Values are between 0 and 1. 1 indicates a perfect correlation and 0 indicates no correlation. This measure is useful in determining if the fund manager is adding value in their investment choices or acting as a closet tracker mirroring the market and making little difference. For example, an index fund will have an R-squared with its benchmark index very close to 1, indicating close to perfect correlation (the index fund's fees and tracking error prevent the correlation from ever equalling 1).

• Standard deviation is a measure of volatility of the fund's performance over a period of time. The higher the figure the greater the variability of the fund's performance. High historical volatility may indicate high future volatility, and therefore increased investment risk in a fund.

Alpha is a risk-adjusted measure of the so-called excess return on an investment. ... A benchmark is a point of reference for a measurement. ... Investment management, also called asset management, fund management or portfolio management is the professional management of collective investments (including insurance and pension funds) to meet specified investment goals for the benefit of the investors. ... The Beta coefficient, in terms of finance and investing, is a measure of a stock (or portfolio)’s volatility in relation to the rest of the market. ... In statistics, the coefficient of determination R2 is the proportion of a sample variance of a response variable that is explained by the predictor variables when a linear regression is done. ... Many portfolios are managed to a benchmark, such as an index. ... In probability and statistics, the standard deviation of a probability distribution, random variable, or population or multiset of values is a measure of the spread of its values. ...

Types of risk

Depending on the nature of the investment, the type of 'investment' risk will vary.

A common concern with any investment is that you may lose the money you invest - your capital. This risk is therefore often referred to as capital risk.

If the assets you invest in are held in another currency there is a risk that currency movements alone may affect the value. This is referred to as currency risk.

Many forms of investment may not be readily salable on the open market (e.g. commercial property) or the market has a small capacity and can therefore may take time to sell. Assets that are easily sold are termed liquid therefore this type of risk is termed liquidity risk.

Note that the investor is indifferent to the type of risk, and should not care whether a loss comes from capital risk, currency risk, or liquidity risk - a loss is a loss.

Internationally recognised collective investments

• Exchange-traded funds or ETFs - an open-ended fund traded by listed shares on major stock exchanges.
• Real Estate Investment Trusts or REITs - a close-ended fund that invests in real estate.

Exchange-traded funds (or ETFs) are open ended mutual funds that can be traded at any time throughout the course of the day. ... // A Real Estate Investment Trust or REIT (rēt, rhymes with treat) is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. ...

US specific collective investments

(Click here for US SEC description of investment company types).

• Mutual Funds - Open-ended with a corporate or trust structure.
• Closed-end funds - Closed-ended with corporate structure.
• Unit Investment Trusts - Open-ended with a trust structure and limited duration.

The definition of a mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. ... A closed-end fund is a collective investment scheme with a limited number of shares. ... Note: the Unit Trust (UT) is a separate mainly UK fund type. ...

UK specific collective investments

• Investment Trusts - Introduced 1868. Closed-ended with corporate structure.
• Unit Trusts - Introduced 1931. Open-ended with a trust structure.
• Unitised Insurance Funds - Introduced 1970s. Open-ended with a life policy structure.
• OEICs or ICVCs - Introduced 1997. Open-ended with a corporate structure.

Investment trusts are companies that invest in the shares of other companies for the purpose of acting as a collective investment scheme. ... A unit trust is a form of collective investment constituted under a trust deed. ... Unitised insurance funds are a form of collective investment offered through life assurance policies. ... An ICVC or Investment Company with Variable Capital is a type of open ended collective investment formed as a corporation under the Open-Ended Investment Companies Regulations. ... An ICVC or Investment Company with Variable Capital is a type of open ended collective investment formed as a corporation under the Open-Ended Investment Companies Regulations. ...

Canadian collective investments

• Income Trusts

An income trust is an investment trust that holds income-producing assets. ...

Ireland specific collective investments

• Common contractual fund

The European Communities UCITS Regulations, 2003 (the “Regulations”) introduced a new collective investment scheme structure in Ireland called a common contractual fund (or “CCF”). The CCF is an unincorporated body established by a management company under which the participants by contractual arrangements participate and share in the property of the...

European collective investments

• UCITS
• SICAVs

France & Luxembourg UCITS (pronounced yoo-sits) or Undertakings for Collective Investments in Transferable Securities are a set of European Union regulations that aim to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one Member State. ... A SICAV is an open-ended collective investment scheme common in Western Europe especially Luxembourg and France. ...

• Investment funds
  • FCP (Fonds commun de placement) (unincorporated investment fund or common fund)
  • SICAF (Société d'investissement à capital fixe) (Investment company with fixed capital)
  • SICAV (Société d'investissement à capital variable) (Investment company with variable capital)

Netherlands and Belgium FCP may stand for several things: Fonds commun de placement, a European collective investment scheme. ... The name translates to Pooled funds, and are similar to open-ended mutual funds in the United States. ... The Seoul International Cartoon and Animation Festival (SICAF), which is celebrating its 9th edition this year, will be held at Pacific Hall/COEX, MegaBox/COEX, and the Seoul Plaza in front of City Hall from 11-16 August for a period of six days. ... A SICAV is an open-ended collective investment scheme common in Western Europe especially Luxembourg and France. ... A SICAV is an open-ended collective investment scheme common in Western Europe especially Luxembourg and France. ...

• • BEVEK (Investment Company with variable capital)
  • BEVAK (Investment company with fixed capital)
  • PRIVAK (Closed-end investment company)

Australian collective investments

• Listed investment company or LIC. Closed-ended collective investment either corporate or trust based. Available since 1928.
• Unit trusts open-ended trust based investments often called Managed funds or unlisted managed funds.

A listed investment company or LIC is an Australian closed end collective investment scheme similar to investment trusts in the UK. They are traded as other securities on the Australian stock market. ... A unit trust is a form of collective investment constituted under a trust deed. ...

Offshore collective investments

Main article: Offshore fund

• Segregated portfolio company a corporate entity for holding various investments under a single legal entity.

An offshore fund is a collective investment scheme domiciled in a tax-haven located on an island juristiction or another low tax financial centre considered offshore, for example British Virgin Islands, Luxembourg or Dublin. ... A segregated portfolio company (or SPC), sometimes referred to as a protected cell company, is a company which segregates the assets and liabilities of different classes (or sometimes series) of shares from each other and from the general assets of the SPC. Segregated portfolio assets comprise assets representing share capital...

See also

• Closed-end fund
• Exchange Traded Fund
• Hedge Fund
• Investment adviser
• Investment management
• Financial intermediary
• Financial planner
• Independent financial adviser
• Offshore investment
• Open-end fund

A closed-end fund is a collective investment scheme with a limited number of shares. ... An Exchange Traded Fund (or ETF) is an open-ended collective investment scheme, traded as a share on most global stock exchanges. ... A hedge fund is an investment fund charging a performance fee and typically open to only a limited range of investors. ... An investment adviser is an individual or firm that advises their client on investment matters on a professional basis. ... Investment management is the professional management of various securities (shares, bonds etc) and other assets (e. ... The term financial intermediary may refer to an institution, firm or individual who performs intermediation between two or more parties in a financial context. ... A financial planner is a professional who helps people with various financial needs including: college planning, retirement planning, investments, life insurance, estate planning and more. ... Independent Financial Advisers or IFAs are professionals who offer unbiased advice on financial matters to their clients and recommend suitable financial products from the whole of the market. ... Offshore investment is the keeping of money in a jurisdiction other than ones country of residence. ... An open-end(ed) fund is a collective investment which can issue and redeem shares at any time. ...

External links

• Answers U.S. SEC Consumer Information
• Investments UK FSA Consumer Information
• Morningstar.co.uk U.K. Fund Information

The Financial Services Authority (FSA) is an independent non-departmental public body and quasi-judicial body that regulates the financial services industry in the United Kingdom. ...