Detailed guidance

Common Investment Funds: a basic guide to their regulation

(Version December 2009)

The Charity Commission is currently amending this guidance as parts of it are now out of date. To reflect the changes in regulation of Common Investment Funds as a result of the implementation of the Alternative Investment Fund Managers Directive (AIFMD), we have published revised model schemes for the establishment and regulation of Common Investment Funds along with advice on their use. We hope to publish the revision of this guidance in the early part of 2014.

This guidance focuses specifically on Common Investment Funds (CIFs) which are one form of investment. For guidance generally on investments by charities and the duties on trustees of those charities when making investments, see our guidance Charities and Investment Matters: A guide for trustees (CC14). In particular, trustees should be familiar with the definition of "investment" , trustees’ duties, trustees’ general duties on risk management and the trustees’ approach to diversification and suitability of investments.

CIFS are established by the Commission in accordance with the policy framework referred to in paragraph 2. The Commission promotes good practice in accordance with charity law in the administration of CIFs by the use of its model scheme. It is however important to note that the Commission is not a financial regulator and does not in any way guarantee the investment performance of a CIF. CIFs created since the introduction of the model scheme in 1998 have a corporate fund manager and trustee each authorised and regulated by the Financial Services Authority.

Trustees of investing charities are responsible for the investment decisions they make and should seek advice from their own professional advisers. Trustees are reminded that past performance is not a guide to future performance and the value of an investment can go down as well as up.

Following the Government announcement in the 2009 budget a consultation on the future regulation of CIFs has just taken place and a report summarising the responses is available on HM Treasury website. A policy response to the consultation will be published at Budget 2010.

Contents and Useful Sources of Information

1. Common Investment Funds

1.1 What are Common Investment Funds?

Common Investment Funds (CIFs) are collective investment schemes. They are set up by Schemes made by the Charity Commission (the Commission) under section 22 of the Charities Act 1960 (now repealed) or section 24 of the Charities Act 1993. Before the Charities Act 2006 they were open only to charities in England and Wales, but are now also open to "appropriate bodies" (i.e. bodies established as charitable under the law of Scotland or Northern Ireland and eligible for UK tax relief) where the Scheme permits this. They operate as investment vehicles and are deemed by law to be charities themselves. They are therefore eligible for registration as charities in their own right.

CIFs are similar to authorised unit trusts but, unlike unit trusts, they are not authorised by the Financial Services Authority (FSA).

CIFs provide diversification of investment to reduce risk, which is tax efficient, administratively simple and cost efficient. They enjoy the same tax status as other charities.

In establishing CIFs under the provisions of section 22 of the Charities Act 1960 or section 24 of the Charities Act 1993, the Commission is able to provide a legal vehicle which increases the choice of investment facilities available for charities.

The fact that the CIFs are established by the Commission must not be taken as a "kite mark" of quality. The Commission makes no determination or judgment as to whether a CIF provides an acceptable level of risk or an acceptable level of performance. Investing charities must form their own view with regard to these matters.

The Commission is not an investment adviser. It cannot offer trustees advice about the merits of a particular investment or investment strategy. The Commission must emphasise that it is not promoting CIFs as a suitable or safe investment vehicle for charities generally, nor is the Commission suggesting that CIFs are risk free. As with all investment matters, trustees of charities must take investment advice from their own suitably qualified professional investment advisers before they invest, irrespective of whether they are investing with CIFs or other types of investment vehicles.

As of July 2008, the last set of annual accounts submitted to us from the 45 commercial CIFs show total assets under management of just over £8.2 billion.

1.2 What are collective investment schemes?

Unit trusts and common investment funds are examples of collective investment schemes. In each case, money contributed to the scheme by investors is pooled, and the operator of the scheme typically invests the money in a range of investments, in accordance with the published policy of the scheme.

All the money and investments in a unit trust or common investment fund belong jointly to the contributors. The size of each share is determined by the number of "units" each contributor owns. The number of units which each contributor owns is determined by the proportion which the value of his or her contribution bears to the total value of the assets in the scheme at the time when the contribution is made. Investment returns are allocated to unit-holders in the same proportions. The risk of particular investments falling in value is spread across all the holders of units in the fund, as they each are joint owners of all the investments in the scheme.

In technical terms, collective investment schemes are defined by section 235 of Financial Services and Markets Act 2000. They involve arrangements with respect to property of any description, including money and their purpose or effect is to enable persons taking part in the arrangements to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income. The arrangements must have either or both of the following characteristics:

  • the contributions of the participants, and the profits or income out of which payments are to be made to them are pooled;
  • the property is managed as a whole by or on behalf of the operator of the scheme.

1.3 What are Pooling Schemes?

A Pooling Scheme establishes a particular type of common investment fund whose main characteristic is that the Pooling Scheme and the participating charities must all have exactly the same trustees. A Pooling Scheme allows a body of trustees who administer more than one charity to combine funds from any or all of those charities for investment purposes: this contrasts with the CIFs which are the subject of this guidance and which are open to different trustees of different charities. For further information relating specifically to Pooling Schemes, see OG 49 - Pooling Schemes and Pool Charities.

1.4 What is a Scheme made by the Charity Commission?

A Scheme is a legal document made by the Commission which establishes, amends, replaces or amplifies the trusts of a charity. It may set out new objects and purposes or changes to them, constitutional arrangements and powers of the charity. Some of these provisions will be mandatory, others simply enabling. It may be:

  • a fully regulating Scheme which deals with all aspects of a charity's purposes and administration and becomes the governing document of the charity; or
  • a Scheme which varies or affects some part of the charity's governing document.

2. Regulation of Common Investment Funds (excluding "Pooling Schemes")

2.1 What does the Charity Commission consider in establishing a CIF?

The Commission has adopted a new Policy Framework for considering applications to establish a CIF. The need for this arose from the new statutory framework provided by the Charities Act 2006. It also recognises the investment climate in which charities are operating.

The Commission is a statutory corporation and can only do what it is authorised to do, either explicitly or implicitly, by statute. The Commission's specific statutory objectives, statutory functions and statutory duties set parameters and define its role in creating CIFs.

A copy of this Policy Framework can be viewed below.

2.2 What are the usual features of a Common Investment Fund established by the Charity Commission?

The Commission provides a legal framework in the form of new and amended Schemes. It requires the CIF to be administered and managed by:

(a) a Manager that is a body corporate which is

(i) authorised by the Financial Services Authority to act either as an operator of a regulated collective investment scheme or as an operator of an unregulated collective investment scheme, and
(ii) independent of the Board (if applicable) and the Trustee;

(b) a Trustee that is a body corporate which is:

(i) authorised by the Financial Services Authority to either act as a Trustee of an authorised unit trust scheme or establish, operate or wind up an unregulated collective investment scheme, and
(ii) independent of the Board (if applicable) and the Manager;

(c) an optional Board that is a body corporate or group of individuals and each member of the Board is independent of the Manager and the Trustee;

Being authorised by the FSA, the Manager and the Trustee will be subject to monitoring by the FSA of their business practices.

The Commission's approach to the regulation of CIFs is designed to mirror (as far as reasonably possible) the regulation by the FSA of other collective investment schemes and these requirements are set out in the Collective Investment Schemes Sourcebook (COLL).

Although the provisions of COLL do not, strictly speaking, apply to CIFs, the Commission has decided, as a matter of policy, to have regard to COLL in considering relevant issues. The Commission has regard to this information in determining its own regulatory approach with regard to CIFs. In this way, the regulation regime for CIFs is comparable to that for collective investment schemes regulated by the FSA.

The Commission will evaluate COLL and applies those provisions (with appropriate amendments, if any) that are believed to be advisable for protecting the interest of charities investing in CIFs, but where there is a good reason in the particular circumstances for departing from COLL, the Commission may do so.

2.3 How does a new Common Investment Fund get established?

A CIF is established by a Scheme of the Commission as described above and it is made under section 24 of the Charities Act 1993 (prior to this Act CIFs were made under section 22 of the Charities Act 1960). The Scheme is dealt with by the Commission's Large Charities Division (see contact details). Because of the complexity of CIFs, it will usually take 6 months to finalise this type of Scheme.

When a promoter (who will usually be a fund manager) wishes to have a new CIF established, he or she should provide us with the information about his or her proposals requested in the questionnaire forms. Should we require further information, we will request it. We will then consider the information provided in the light of the Policy Framework for considering applications to establish Common Investment Funds. If we agree in principle to make such a Scheme, we will draft the Scheme, the legal instrument creating the CIF. The Scheme Particulars, which are the detailed rules made under powers in the Scheme, will be drafted by the fund manager.

A prospective Manager is advised to seek at the earliest opportunity possible a pre-application meeting to discuss a working draft application with the Commission's staff in order to identify any key policy issues or other matters to which special attention might be given before a finalised application is formally submitted.

The making of a Scheme to establish a new CIF requires support from any two or more charities that are willing and able to invest in the new CIF with funds to provide the necessary initial seeding.

2.4 What are the Charity Commission's objectives with regard to Common Investment Funds?

The Commission's objectives with regard to CIFs can be summarised as follows:

  • to ensure the administration of CIFs is properly managed in accordance with charity law and their Scheme provisions and Scheme Particulars and to encourage good practices;
  • to improve accountability to unitholders through a greater transparency with more disclosure of information;
  • to promote a legal framework in which CIFs can operate effectively as financial vehicles;
  • to encourage charity trustees of CIFs to act and discharge effectively and efficiently the duties imposed upon them by law;
  • to investigate allegations of misconduct or mismanagement.

It cannot be overemphasised that investors' protection cannot be guaranteed. With a greater degree of transparency through disclosure of expenses, costs and commission fees, and improved quality of the products on sale, trustees of investing charities themselves should be better able to take a closer scrutiny of the performance of their investments.

2.5 What aspects of Common Investment Funds does the Charity Commission not regulate?

On investment matters, the individual charity trustees, the Corporate Managers and the advisory committees or advisory boards of CIFs (if applicable) are responsible for setting the performance objectives that are measurable, and determining the investment policy and strategy and the risks that may be associated with such policy and strategy.

The Manager and the Trustee will be regulated and subject to monitoring by the FSA . The Commission does not attempt to duplicate the regulatory functions of the FSA. This means that the Commission does not regulate the efficacy of investment policies or ensure that the investment policies being adopted are necessarily appropriate or meet the expectations of the investing charities.

2.6 What should the trustees of investing charities consider before investing in Common Investment Funds?

Trustees of investing charities are ultimately responsible for the investment decisions they make and for reviewing their investments periodically. It is good practice to review their investments at least once a year and more frequently, if necessary, when the stock market is volatile and this is so irrespective of whether the investments are with CIFs or some other types of investments.

Trustees of investing charities must continue to seek investment advice from their own professional advisers as to the suitability and diversification of their investment portfolio. Investing charities are reminded of the "buyer beware" principle and they should exercise a greater degree of caution themselves. The price of units in a CIF can go down as well as up.

Trustees of investing charities must decide for themselves whether the CIFs they consider investing with are suitable or appropriate for their charities and carry an acceptable level of risks or deliver an acceptable level of performance.

Trustees of investing charities should take note there is generally no compensation for under-achieving investment performance. It is a matter for the investing charities to consider and decide whether they should withdraw their money from a particular CIF or a particular type of investment because of its recent poor performance.

Trustees of investing charities may also wish to consider asking fund managers whether the particular CIF they are proposing to invest in is eligible under the terms of the Investors Compensation Scheme.

In summary, trustees should consider each investment decision on its merits. The fact that CIFs are established by the Commission does not mean they are better or appropriate investment vehicles for charities generally. Nor do CIFs carry a "kite mark" of quality simply because they are established by the Commission.

3. The Financial Services Authority

3.1 What is the Financial Services Authority's role with regards to Common Investment Funds?

The Financial Services Authority (FSA) is an independent body that regulates the financial services industry in the UK. Persons and firms that engage in specific types of activity (called "regulated activity") must be authorised to do so by the FSA. Establishing and/or operating a CIF, if that is done by way of business, may be a regulated activity and therefore need to be authorised by the FSA. Acting as trustee of an authorised unit trust by way of business is also a regulated activity. In practice, this will often mean that the fund manager and corporate trustee of a CIF will be engaging in regulated activity. A fund manager and/or corporate trustee that is authorised to engage in regulated activity will be monitored and supervised by the FSA.

In order to be authorised by the FSA, a person or firm must satisfy the threshold conditions set out in Schedule 6 to the Financial Services and Markets Act 2000 (the Act which establishes the regulatory remit of the FSA). Areas covered by the threshold conditions include:

(i) the legal status of the firm;

(ii) the place in which the firm and/or its head office is located;

(iii) the ownership of the firm and/or any relevant group structure;

(iv) the firm's resources;

(v) whether the firm is fit and proper (i.e. meets criteria as to honesty, competency and financial soundness).

Generally speaking, the FSA monitors and supervises regulated activity by:

  • considering applications to carry on regulated activity;
  • considering applications by individuals to perform ‘controlled functions' in an authorised firm, which will include consideration of whether those individuals are fit and proper to carry out those functions;
  • answering technical enquiries about whether firms require authorisation and/or individuals require approval;
  • seeking to ensure that only authorised firms carry out regulated activity;
  • collecting and maintaining intelligence information about authorised firms and individuals; and
  • ensuring FSA authorised firms and individuals comply with the FSA's handbook of rules and guidance.

The objectives of the FSA are set out in the Financial Services and Markets Act 2000 and are:

  • Maintaining confidence in the UK financial system.
  • Promoting public understanding of the financial system.
  • Securing the right degree of protection for consumers.
  • Helping to reduce financial crime.

As at 31 March 2004, the FSA regulated some 10,712 firms. These ranged from global fund management operations, investment banks, large UK stockbrokers and major networks of independent financial advisers, to the smallest corporate finance boutique operations and one-person financial advisers.

For further information about the Financial Services Authority and their work, please visit their website

4. Other useful information

4.1 List of CIFs that have adopted the Charity Commission's 1998 restructuring policy

Names of Common Investment Funds

Registration numbers with the Charity Commission

COIF Charities Investment Fund


Charinco CIF


Charishare CIF


COIF Charities Fixed Interest Fund


The Bond Fund for Charities


The UK Equity Fund for Charities


Targeted Return Fund


The Alpha Common Investment Fund for Endowments


Common Fund for Income


Common Fund for Growth


The Charity Fixed Interest Fund


The Charity Equity Fund


Chariguard Fixed Interest Fund


Chariguard UK Equity Fund


Chariguard Overseas Equity Fund


Charishare Tobacco Restricted Fund


The Income Trust for Charities


The Growth Trust for Charities


Diversified Charity Fund


ChariTrak Common Investment Fund


The Charities Property Fund


Affirmative Fixed Interest Fund for Charities


Affirmative Equity Fund for Charities


Global Growth and Income Fund for Charities


COIF Charities Property Fund


Armed Forces Common Investment Fund


Absolute Return Trust for Charities


Equity Income Trust for Charities


CAF UK Equitrack Fund


The Alpha Common Investment Fund for Income and Reserves


Charity Select Global (ex UK) Equity Fund


Charity Select UK Bond Fund


Charity Select UK Equity Fund


Accommodation Investment Fund for Charities


Charifaith Common Investment Fund


The Multi-Strategy Property Trust for Charities


Charity Value and Income


The Charity Multi-Asset Fund


COIF Charities Global Equity Income Fund


The Affirmative Corporate Bond Fund


COIF Charities Ethical Investment Fund


4.2 List of CIFs that have not adopted the Charity Commission's 1998 restructuring policy

Names of Common Investment Funds

Registration numbers with the Charity Commission

National Association of Almshouses CIF


Charibond Common Investment Fund


CAF UK Equity Growth Fund


CAF Bond Income Fund


Combined Charitable Income Fund


Combined Charitable Capital Fund


4.3 The following publications from the Charity Commission may provide further useful information on related subjects

5. Model Schemes

5.1 Model Scheme A - with a Corporate Manager, a Corporate Trustee and an optional Board (PDF).

5.2 Model Scheme B - with a Corporate Manager and a Corporate Trustee only (PDF).

6. Questionnaire forms for a Common Investment Fund Scheme

6.1 CIF-1040 (application to establish a Common Investment Fund - PDF)

6.2 CIF-1040A (costs and expenses questionnaire - PDF)

6.3 CIF-1040B (risk questionnaire - PDF)

7. Completing the Annual Return form for Common Investment Funds

7.1 The Commission has made the Charities (Annual Return) (Common Investment Funds) Regulations 2008. They came into force on 1st January 2009 and they apply to common investments funds whose financial years end on or after that date. The Regulations can be viewed below.

The Commission will be sending out the appropriate Annual Return form for completion as and when the financial years for common investment funds end.

7.2 A copy of the impact assessment on common investment fund Annual Return 2009 can also be viewed below.

8. Contacts with the Charity Commission

Common Investment Funds are dealt with by the Commission's Large Charities Division, 2nd Floor, One Drummond Gate, Victoria, London SW1V 2QQ . All enquiries and correspondence relating to Common Investment Funds should be addressed to this Division.

Contact Centre

For further information about these webpages generally, call 0845 300 0218. The number for hearing and speech impaired callers using a minicom is 0845 300 0219.

Print page