Understanding the Growing Interest in Collective Investment Trusts

Welcome to MutualFunds.com

Please help us personalize your experience and select the one that best describes you.

Your personalized experience is almost ready.

Join other Individual Investors receiving FREE personalized market updates and research. Join other Institutional Investors receiving FREE personalized market updates and research. Join other Financial Advisors receiving FREE personalized market updates and research.

Thank you!

Check your email and confirm your subscription to complete your personalized experience.

Thank you for your submission

We hope you enjoy your experience

Channels

Fixed income news, reports, video and more.

Municipal bonds news, reports, video and more.

Practice management news, reports, video and more.

Portfolio management news, reports, video and more.

Retirement news, reports, video and more.

Learn from industry thought leaders and expert market participants.

Find the latest content and information here about the 2019 Charles Schwab Impact Conference.

Advisors

Receive email updates about fund flows, news, upcoming CE accredited webcasts from industry thought leaders and more.

Content focused on helping financial advisors build successful client relationships and grow their business.

Content geared towards helping financial advisors build better client portfolios.

Get insights on the industry trends and investment news from leading fund managers and experts.

Understanding the Growing Interest in Collective Investment Trusts

Concept of investment options

A Collective Investment Trust (CIT) is a type of tax-exempt, pooled investment vehicle offered for Employee Retirement Income Security Act of 1974 (ERISA) contribution plans and other types of government retirement plans. They are available only to defined contribution and defined benefit plans, which means IRAs and other types of retirement vehicles are not able to offer CITs to investors.

While CITs and mutual funds share many similarities, there are some key differences that investors will want to understand before selecting a fund. Understanding how the funds differ would help to explain their role in retirement planning.

Learn more about mutual funds here.

Getting to Know CITs

Unlike traditional mutual funds, CITs are not subject to securities laws and regulations and are not required to register with the Securities and Exchange Commission (SEC). Instead, these funds fall under ERISA compliance regulations and are sponsored by banks or trusts. The primary regulator for CITs is the Office of the Comptroller of the Currency (OCC) as opposed to the SEC for mutual funds.

The reach of CITs is expanding. In March 2020, a bill was introduced to Congress to allow 403b retirement plans to offer CITs. If passed, this addition would broaden the market for CITs and give investors and advisors significantly more investment options.

Investment choices for CITs are the same as the choices for traditional mutual funds. CITs can invest in the same type of financial instruments and assets, including stocks, bonds, REITs, ETFs, derivatives, and more. Typically, CITs combine assets into one large investment pool that has a specific investment strategy. In this sense, CITs act much like target-date mutual funds.

CITs have become popular investment choices over mutual funds in recent years. From 2011 to 2018, CITs saw assets grow by 64% from $1.87 trillion to $3.07 trillion. CITs’ share of 401k assets climbed to 28% while mutual funds saw a decline to 48% of total 401k assets. For 2019, CITs were reported to have $69 billion in net inflows, representing organic growth of 10%.

Use our Mutual Fund Screener to find the funds that match your investment criteria.

The Benefits of CITs Compared to Traditional Mutual Funds

The current economic and market uncertainty surrounding the COVID-19 pandemic and the risk of another outbreak means investors are more anxious than ever when it comes to ensuring the safety of their retirement investment accounts.

CITs break down their fee structure in a way that traditional mutual funds do not. This also benefits advisors who often have a lower break-even point due to less overhead costs within the fund. Because CITs only need to meet regulations regarding retirement accounts, they have lower marketing expenses and distribution fees. But investors should check to make sure the fee structure works for the intended investment objective. CIT fees vary and may include custodial fees, advisor fees, transactional fees, and trustee fees. Overall, though, fees for a CIT tend to be 20 to 25 basis points lower than those found in traditional mutual funds.

CITs have also been shown to generate better risk-adjusted returns compared to similar types of mutual funds. Some of this can be attributed to lower fees that translate to greater returns for investors. Additionally, the structure of CITs means having more portfolio managers involved at each level, giving investors an overall advantage over traditional mutual funds.

Transparency has been one of the biggest negatives for CITs compared to mutual funds but that is beginning to change with CIT ticker symbols now appearing. Even still, many investors are unfamiliar with CITs; despite the trend toward transparency, there is still more information on mutual funds available to investors.

Don’t forget to click here to learn more about the primary differences between CITs and mutual funds.

Choosing Between a CIT and a Mutual Fund

Investors who are interested in CITs need to first ensure that they are available in the type of retirement benefit plan they have. For the moment, only government employees subject to ERISA guidelines have the option to pick CITs but that could change if Congress passes the bill to grant 403b plans access to CITs.

The lower fee structure is one of the biggest selling points for a CIT compared to traditional mutual funds. That means, compared to similar mutual funds, investors will see a greater profit from CITs simply due to a reduction in fee expenses.

However, transparency and the lack of advertising still affect the CIT industry. Many investors might not want to invest in a product they are unfamiliar with nor do they want to entrust their retirement money to a fund that isn’t as transparent as a traditional mutual fund. Until CITs offer something similar to the prospectus offered by mutual funds, many investors might not feel comfortable investing in CITs.

The Bottom Line

Collective Investment Trusts have gained in popularity recently primarily due to their lower operating cost structure. Not only does this reduce overall fees for the investor but it also gives them more flexibility by letting them choose a fund structure that works best for them. Eligible investors who have the option to choose either a CIT or mutual fund might benefit more from CITs thanks to lower fees and better risk-adjusted returns.

Be sure to check our News section to keep track of the latest updates from the mutual fund industry.


Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Popular Articles

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.


Read Next

Concept of investment options

Understanding the Growing Interest in Collective Investment Trusts

A Collective Investment Trust (CIT) is a type of tax-exempt, pooled investment vehicle offered for Employee Retirement Income Security Act of 1974 (ERISA) contribution plans and other types of government retirement plans. They are available only to defined contribution and defined benefit plans, which means IRAs and other types of retirement vehicles are not able to offer CITs to investors.

While CITs and mutual funds share many similarities, there are some key differences that investors will want to understand before selecting a fund. Understanding how the funds differ would help to explain their role in retirement planning.

Learn more about mutual funds here.

Getting to Know CITs

Unlike traditional mutual funds, CITs are not subject to securities laws and regulations and are not required to register with the Securities and Exchange Commission (SEC). Instead, these funds fall under ERISA compliance regulations and are sponsored by banks or trusts. The primary regulator for CITs is the Office of the Comptroller of the Currency (OCC) as opposed to the SEC for mutual funds.

The reach of CITs is expanding. In March 2020, a bill was introduced to Congress to allow 403b retirement plans to offer CITs. If passed, this addition would broaden the market for CITs and give investors and advisors significantly more investment options.

Investment choices for CITs are the same as the choices for traditional mutual funds. CITs can invest in the same type of financial instruments and assets, including stocks, bonds, REITs, ETFs, derivatives, and more. Typically, CITs combine assets into one large investment pool that has a specific investment strategy. In this sense, CITs act much like target-date mutual funds.

CITs have become popular investment choices over mutual funds in recent years. From 2011 to 2018, CITs saw assets grow by 64% from $1.87 trillion to $3.07 trillion. CITs’ share of 401k assets climbed to 28% while mutual funds saw a decline to 48% of total 401k assets. For 2019, CITs were reported to have $69 billion in net inflows, representing organic growth of 10%.

Use our Mutual Fund Screener to find the funds that match your investment criteria.

The Benefits of CITs Compared to Traditional Mutual Funds

The current economic and market uncertainty surrounding the COVID-19 pandemic and the risk of another outbreak means investors are more anxious than ever when it comes to ensuring the safety of their retirement investment accounts.

CITs break down their fee structure in a way that traditional mutual funds do not. This also benefits advisors who often have a lower break-even point due to less overhead costs within the fund. Because CITs only need to meet regulations regarding retirement accounts, they have lower marketing expenses and distribution fees. But investors should check to make sure the fee structure works for the intended investment objective. CIT fees vary and may include custodial fees, advisor fees, transactional fees, and trustee fees. Overall, though, fees for a CIT tend to be 20 to 25 basis points lower than those found in traditional mutual funds.

CITs have also been shown to generate better risk-adjusted returns compared to similar types of mutual funds. Some of this can be attributed to lower fees that translate to greater returns for investors. Additionally, the structure of CITs means having more portfolio managers involved at each level, giving investors an overall advantage over traditional mutual funds.

Transparency has been one of the biggest negatives for CITs compared to mutual funds but that is beginning to change with CIT ticker symbols now appearing. Even still, many investors are unfamiliar with CITs; despite the trend toward transparency, there is still more information on mutual funds available to investors.

Don’t forget to click here to learn more about the primary differences between CITs and mutual funds.

Choosing Between a CIT and a Mutual Fund

Investors who are interested in CITs need to first ensure that they are available in the type of retirement benefit plan they have. For the moment, only government employees subject to ERISA guidelines have the option to pick CITs but that could change if Congress passes the bill to grant 403b plans access to CITs.

The lower fee structure is one of the biggest selling points for a CIT compared to traditional mutual funds. That means, compared to similar mutual funds, investors will see a greater profit from CITs simply due to a reduction in fee expenses.

However, transparency and the lack of advertising still affect the CIT industry. Many investors might not want to invest in a product they are unfamiliar with nor do they want to entrust their retirement money to a fund that isn’t as transparent as a traditional mutual fund. Until CITs offer something similar to the prospectus offered by mutual funds, many investors might not feel comfortable investing in CITs.

The Bottom Line

Collective Investment Trusts have gained in popularity recently primarily due to their lower operating cost structure. Not only does this reduce overall fees for the investor but it also gives them more flexibility by letting them choose a fund structure that works best for them. Eligible investors who have the option to choose either a CIT or mutual fund might benefit more from CITs thanks to lower fees and better risk-adjusted returns.

Be sure to check our News section to keep track of the latest updates from the mutual fund industry.


Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Popular Articles

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.


Read Next