A Collective Investment Scheme is an arrangement where multiple investors pool their money into a shared fund, which is then professionally managed.
Each investor owns a proportion of the scheme based on how much they’ve contributed, and profits (or losses) are shared accordingly.
These investments can include:
- Listed assets – stocks, shares, gilts, and bonds.
- Unlisted assets – private company shares, commercial or residential property, and land.
- Other instruments – derivatives linked to underlying assets.
Collective Investment Scheme in Property Investment
In property, a Collective Investment Scheme allows several people to jointly invest in one or more properties without having to buy and manage them individually. The scheme’s operator makes the investment decisions, collects rental income, pays expenses, and distributes profits to investors.
This approach works well for:
- New investors starting with smaller budgets.
- Landlords wanting to diversify their portfolio into larger or multiple properties.
- Experienced investors seeking a hands-off way to expand their portfolio.
Example of a Collective Investment Scheme
Imagine a £5 million commercial property in Manchester. Instead of one investor buying it, a CIS allows 50 investors to each contribute £100,000. The scheme manager handles the purchase, tenant management, and maintenance. Investors receive a share of rental income and any capital growth when the property is sold.
Are Collective Investment Schemes Regulated in the UK?
Yes. In the UK, most CISs must be authorised by the Financial Conduct Authority (FCA), especially when aimed at retail investors.
In the UK, CISs mainly fall into two categories:
- Authorised Investment Funds (AIFs) – The collective term for Authorised Unit Trusts (AUTs) and Open-Ended Investment Companies (OEICs). These are authorised by the Financial Conduct Authority (FCA) and can be sold to retail investors.
- Unauthorised Unit Trusts (UUTs) – Not authorised by the FCA, and generally only available to certain professional or high-net-worth investors.
Not all investment vehicles are CISs under FSMA. For example, investment trust companies, venture capital trusts, industrial provident societies, friendly societies, and building societies are not considered CISs.
Can You Sell Your Share in a Collective Investment Scheme?
Often, your investment is locked in for a fixed period. Unlike listed shares, you may not be able to sell instantly, so CISs are generally considered illiquid investments.
How Do You Make Money from a Collective Investment Scheme?
You typically earn returns in two ways:
- Rental income – Distributed regularly in proportion to your share.
- Capital growth – If the property value rises, you get a proportionate share when it’s sold.
What Are the Risks of a Collective Investment Scheme?
- Property values can go down as well as up.
- Income isn’t guaranteed – if tenants leave or market rents drop, payouts may fall.
- You have no direct control over investment decisions.
