Collective investment institution (IIC)
A collective investment institution (IIC) is one whose main and exclusive activity is to raise funds from the public. In this way, its purpose being the joint management and investment in other types of financial or non-financial instruments.
In general, financial users perceive investment in collective investment institutions as an interesting alternative from the savings perspective. This occurs because they allow access to markets in which a client alone could not invest directly.
In Spain, IICs are regulated in Law 35/2003, of November 4, on collective investment institutions, and can take the legal form of a public limited company or investment fund. They are configured as separate assets without legal personality, whose ownership belongs to a plurality of investors. In them, a specific private investor makes a series of contributions to the institution and the return on their investment is determined based on the collective results.
Advantages of Collective Investment Institutions
This joint investment modality that characterizes Collective Investment Institutions offers a series of advantages for the private investor:
- Wide accessibility to the market: The participant of the Collective Investment Institution has the possibility of accessing markets in any country in the world without incurring high costs. In addition, you can see your assets invested in a wide variety of financial assets.
- Investment protection guarantees: On the one hand, the National Securities Market Commission (CNMV), as the competent supervisory body, controls the decisions adopted by the IICs.On the other hand, the Investment Guarantee Fund (FOGAIN) also contributes to increasing the security of this joint investment modality. To do this, compensating investors in the event of insolvency of investment services companies.
- Professional management: Investment decisions are made by qualified professionals with extensive knowledge of financial markets.
- Cost reduction: By entering the market through a joint investment, commissions and operating costs for the investor are reduced. In other words, if the private investor made an identical investment, they would incur much higher costs when doing it individually than through the collective investment modality.
- Favorable tax treatment: It is only taxed for the reimbursement or transfer of the shares in the collective investment institution. Transfers of shares from one Institution to another have no tax effect. Therefore, there is a deferral in taxation which can be advantageous.
- Transparency: The law establishes demanding provisions on the information and publicity obligations of IICs with respect to their investors.
- High liquidity: The purchase and sale of participations and shares of IICs is usually quite simple and without great counterparty risks.
- Absolute diversification (low concentration of investment).
- Profitability: The investor can achieve interesting profitability peaks through small investments.
- Operational simplicity: The operation of Collective Investment Institutions is not very complex. For example, in an investment fund it is only necessary for the individual investor to deliver the fund's subscription order so that its management is delegated to professionals who will carry out the selection of the most appropriate financial assets at all times.
Classes of Collective Investment Institution
Investment Policy of a Collective Investment Institution
In many countries, a series of limitations are established by law with respect to investment decisions made by Collective Investment Institutions. All of them must respect the following principles:
- Liquidity: In order to invest, they must have enough cash. In the case of financial IICs, this cash control is carried out through the calculation of the liquidity coefficient.
- Risk diversification: The IICs have to limit the concentration of counterparty risk trying to diversify their investments.
- Transparency: Both the strategy and the investment profile of the Institution must be established in advance. In addition, this information must be reflected in the http: // Key Investor Information Sheet (DFI brochure) Key Investor Information brochure (DFI Sheet).