The collective investment scheme industry in South Africa has shown phenomenal growth over the last 50 years. Beginning with a single equity fund in June 1965 (The Sage Fund, with an asset value of R600,000), the industry has grown to 1,171 funds by the end of 2014, with a total asset value of R1.694 trillion – (ASISA 31/12/2014) . From a single equity fund, the unit trust industry has grown to include money market funds, bond funds, many specialist equity funds, international funds, funds of funds, and index funds.

The sums of money that are exchanged on the JSE make big “blue chip” shares and bonds too pricey for most people. With a CIS, the money from a group of investors is pooled or collected together to form a CIS portfolio.

Collective investments thus provide a means for ordinary people to invest in the stock market and to beat inflation by getting good returns. In a way they can be described as a group of people investing for a common interest.

A collective investment scheme is a trust based scheme that comprises a pool of assets that is man-aged by an investment manager. Each investor has a proportionate stake in the CIS portfolio based on how much money he or she contributed.

Collective Investment Schemes used to be known as unit trust due to their legal structure: the word “unit” referred to the portion or part of the CIS portfolio that is owned by the investor; the “trust” is the financial instrument that is created in order to manage the investment.

To protect investors, the custody of the underlying investments must by law be separated from the management of the investments. There are a number of distinct parties involved in a collective investment scheme:
The CIS Manager is the bridge between the various
investors and the portfolio or asset manager. The Manager usually handles the administration, marketing and sales of collective investments.
The Trustee or custodian acts as the caretaker of all cash and securities in a scheme, holding these on behalf of investors. Another of their functions is to ensure that the CIS is run in accordance with the deed of the scheme and the legal requirements. For this reason the trustee must be independent, and cannot be a subsidiary or holding company of the CIS manager.
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The Portfolio or investment manager is responsible for investing the pool of investors‛ money. He or she will decide which securities to hold, when to buy or when to sell.
It is the legal structure of the CIS that gives the average South African investor a secure and affordable way to invest in.