CIF or collective investment fund is a collection of accounts held by a trust company or a bank or an other financial institution. One of these banks or trusts might have a certain portfolio of stocks in which there isn’t much diversity. When a CIF, also knows as a collective investment trust or CIT, allows these financial institutions to develop one single combined portfolio.
These CIFs have two types:
A1 Funds
These assets are grouped for investment or reinvestment
A2 Funds
These assets are grouped assets for profit sharing, stock bonus etc. Mainly for entities exempt from the federal income tax
Names
CIFs are also known as common trust funds, common funds and collective trusts.
Availability Of CIFs
CIFs are generally available to individual only via their employer. Specifically individuals get access to CIFs via employer-sponsered retirement, pension plans and insurance companies. It is not available to IRA account holders, non-qualified deferred compensation plans or to 403(B) plans.
The Working Of Collective Investment Funds: Explained
The SEC or Security Exchange Commission does not regulate an CIFs nor does the investment act of 1940 apply instead they are regulated via the regulatory authority of the Office Of the Comptroller of the Currency more commonly known as OCC. The CIF allow banks to operate much easily and at a lower cost by allowing them to avoid costly purchases of small lot investments for their smaller accounts. Furthermore the are also not FDIC-insured.
Similarity Of CIFs
CIFs technically are just pooled funds, pooled in the same way mutual funds are pooled however they are actually unregistered investments much more similar to hedge funds than mutual funds.
Why To Start A CIF
The primary objective of a CIF is to lower costs with a combination of profit-sharing funds and pensions. The CIF is basically just a pooled trust account managed by a bank or an other investment company.
CIFs are designed by banks and other financial bodies / institutions to enhance the investment management by gathering various assets from multiple different accounts into one fund that is controlled and directed by a specific investment strategy and a clear objective in mind. By combing all of those different assets into a single account, the bank is often able to decrease many of their expenses such as operation costs and administrative costs while also getting the max amount of returns from their pooled funds.
How To Invest In A CIF
The bank or other financial institution has a legal title to the assets and is the owner of the assets in the fund. On the other hand the people that are participating in the fund, they are beneficial owners of the assets. Another thing to keep in mind is the fact that the participators do not technically own any specific asset in the CIF instead they have an interest in the fund’s aggregated assets. A CIT can invest in any kind of asset it wishes to invest in including but not limited to stocks, bonds, commodities, derivatives and even other mutual funds.
What Is The Difference Of CIFs & Mutual Funds
While both offer many benefits financial in terms of investment options, they are both different in various ways which are explained below
- CIFs (Mostly) tend to have lower operating costs as compared to mutual funds, this is only because they don’t have any regulations for reporting to the SEC while mutual funds do.
- CIFs are offered exclusively by banks and trust companies for retirement plans and are unavailable to the general public. Whereas mutual funds are easily available and can be purchased via a broker or some other financial body.
- CIFs can not be rolled over into IRAs or into any other type of account whereas you have the option to do so in Mutual funds.
Drawbacks Of CIFs
CIFs have a big drawback in face of their many advantages which you may or may not be able to overlook, this being the fact that they are not available to all investors and only are for those with a qualified, employer-sponsored retirement plan. One more drawback does exist which is also mentioned above, this being the fact that the CIFs can’t be rolled over into an IRA account or any other account for that matter.
Any induvidual
Benefits Of CIF For Retirement Investing
CIT or a Collective Investment Fund combines many features that make mutual funds successful with some very niche advantages. CITs can present a great investment option and lower costs as they have increased scrutiny on defined contribution plans
Although mentioned before, it is fitting to mention here as well, any individual retirement accounts (IRAs), non qualified deferred compensation plans or 403(B) plans do not have access to a CIT
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