Collective Investment Schemes Explained
The Investments and Securities Act (ISA) No. 29 of 2007 (Section 153) defines Collective Investment Scheme as “a scheme in whatever form, including an open-ended investment company, in pursuance of which members of the public are invited or permitted to invest money or other assets in a portfolio, and in terms of which:
- Two or more investors contribute money or other assets to and hold a participatory interest;
- The investors share the risk and benefit of investment in proportion to their participatory interest in a portfolio of a scheme or on any other basis determined in the deed, but not a collective investment scheme authorised by any other Act”.
Types of Collective Investment Schemes:
• Unit Trusts
• Venture Capital Funds
• Open-ended Investment Companies
• Real Estate Investment Schemes
• Specialized Funds
A Unit Trust Scheme is a Fund into which small sums of monies from individual investors are collected to form a “pool” for the purpose of investing in stocks, shares and money market instrument by professional fund managers on behalf of the contributors called unit holders [subscribers]. By investing in a unit trust scheme, the unit holders enjoy the benefits of diversification and professional management of their fund at low cost.
The total fund of a unit trust scheme is divided into units of exactly equal monetary value e.g. If one unit is N1.00, any person investing N100 will get 100 units. Unit Trust Funds are invested in highly-rated securities on behalf of the unit holders by the management company.
There are two types of Unit Trust Schemes, viz;
This is a Fund that continuously creates issues and redeems units after the initial public offering. The price is based on the Net Asset Value (NAV), which is total asset of the fund minus liabilities as at date of purchase or redemption.
In a Closed–Ended Fund, there is no additional issue of new units or redemption of units. The Fund is usually listed and traded on the Stock Exchange and its price will be determined by the market forces of supply and demand. A unit holder who wants to redeem his unit will therefore have to go through his Stockbroker.
A Trust Deed is the agreement between the Fund Manager and the Trustee. It governs the management of a Unit Trust Scheme by laying down rights, responsibilities, investment objectives, policies, outlets and all other relevant information of the Fund.
Key Parties to Unit Trust Scheme
• Fund manager
Benefits of Unit Trust Schemes
• Deepening of the Nigeria capital market
• Bringing capital market activities to the grassroots
• Helps to pool funds from various investors for investment purposes
• Encourages small private enterprises to take advantage of capital market funds for long-term investment purposes, which is necessary for the expansion of their businesses and subsequently the economy
• Profit/income, capital appreciation e.t.c
• Avails retail investors with professional Management for their Funds