Safe Method for Small Investors

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A collective investment is a facility that permits a number of investors to pool their funds or assets that would be managed by an independent professional manager. Collective investments can comprise bonds, listed equities and gilts depending on the scheme availed by the investors the number of assets will increase. Investors can also invest in unlisted investments or assets. Hence these investors can limit the risk factor by spreading the investment in a wide range of assets instead of making a direct investment in these assets. Risk is limited in collective investment because the risk associated with one investment will have a lesser impact on the profitability of the entire portfolio. Section 235 of the Financial Services and Markets Act 2000 (FSMA) defines collective investment. Collective investments in the UK are divided into different types. The main types are Open Ended Investment Companies (OEIC’s), Authorised Investment Funds (AIF’s), or combined term for authorized Unit Trusts (AUT) and Unauthorised Unit Trusts (UUT’s). The main difference between AUT and UUT is based on the recognition of the Financial Service Authority on these investments. However, Open Ended Investment companies operate only with the recognition of the FSA. The authorization decides on the eligibility to avail investment in these funds and the type of assets to be invested. (Anon, What is a collective investment scheme?)Unit Trusts, Investment Trusts, and OEICs offer professional management of small amounts of money for a fee with the added benefit of capital returns made by the managers being free of tax. OEIC’s and Unit Trusts are identical in nature. In this type of investment shares held by the investor indicate the value of the investment managed by the managers who handle the investment for charges. The difference between these two investments lay in the mode of paying charges. Charges for Unit Trust are acquiredthrough a bid/offer spread where there are chances that a high price will be charged to the investors who wish to purchase units as against the amount paid to an investor while selling their units.