56. How works collective investment scheme (investment fund)?

An investment portfolio is a collection of securities owned by an individual or institution (such as a collective investment scheme). A funds‛ portfolio may include a combination of financial instruments such as bonds, equities, money market securities, etc. The theory is that the investments should be spread over a range of options in order to diversify and spread risk. Each of the clients of the CIS manager will own a portion of the investment portfolio of the fund of their choice, indicating where his/her shares have been invested.

By using a CIF, an individual investor may obtain investment diversification that would otherwise be difficult to achieve. Investors in collective investments can reduce the risk of investing by spreading the risk of their investment, as the fund manager will be able to purchase a far greater number of investments than the individual investor.

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 safeguards the assets and ensures 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.

57. Foreign collective investment schemes (investment funds).

Collective investments - are investments in which many different investors put their money together or pool their money into a portfolio. Then this pooled money is managed by professional investment managers. These professional investment managers invest this money in different assets.

These assets include a wide range of local and international shares or equities of companies listed on an exchange, bonds, property and money market instruments.

The idea of a collective fund is to lower costs through economies of scale by combining pensions and profit-sharing funds.

These pooled funds are grouped into what is known as a master trust account under the control of the bank, which acts as trustee, guardian, executor or administrator

3 types of CIS: in Securities, in Property (the investor gets a portion of the rental income of the property), Participation Mortgage Bond Schemes (licensed scheme accepts money from investors and lends it to institutions/individuals in order to develop property more than 5 years).

CIS in different countries called Contractual fund, Trust, Investment company or contractual fund, Investment company.

The reasons for developing CIS: Boom in Capital Markets 1980-2000, Individuals increasingly prefer institutional investment to direct investment, Pooling of savings by many small investors.

Foreign collective investment schemes are:

• International Variable Capital Company (open-end investment fund)

• International Fixed Capital Company (closed-end investment fund)

• International Unit Trust Scheme

• International Investment Limited Partnership

Examples: Cyprus is one of the most favourable jurisdictions for hosting the activities of International Collective Investment Schemes (ICIS): 98 CIS recognized by the Central Bank of Cyprus. USA-specific CIS: Mutual Funds, Closed-end funds, Unit Investment Trusts , Exchange-traded funds.

Ukraine experience: Unit investment funds (UIF), Corporate investment funds (CIF), Venture funds. Among CIS in Ukraine the largest share belongs to closed-end venture funds.