Investment Management
Collective Investment
Collective investing sees individual investments pooled with other investors funds with, potentially, a broader range of investments being purchased with the pooled funds.
For the investor there are several advantages to this approach, including:
- Higher levels of investment diversification than the direct investment approach
- Benefits to investors with smaller amounts to invest because of the spread of underlying investments
- Access to a broad range of investment markets and sectors through specialised funds
- Opportunity to diversify into different funds to spread investment risk
- Opportunity to invest in a tax efficient manner to incorporate Individual Savings Account allowances
However, there are also downsides to this approach and these include:
- May be more expensive than direct investments
- Little or no investor involvement in the investment process
- There may be a detrimental effect if an individual fund manager changes or leaves the fund management house
- No guarantee to the funds invested, as investment values can both fall and rise
Investments into collective investments can be made either by way of one off or ad hoc lump sum payments, or by a series of regular - i.e. monthly, payments.
With regard to charges and costs, there is usually an initial charge - known as the Bid/Offer Spread, which may be as high as 5% of the amount invested and there will also be an ongoing annual management charge, with 1% being a rule of thumb.
