As the name suggests, CIU are in the business of collective
investment i.e. they pool and invest capital raised from the public
and do so for a fee or “management charge”. It is this
management charge that is the subject of the VAT exemption. CIU may
be constituted in various legal forms e.g. under statute as
companies (such as OEIC), under trust law (such as AUTS) or by
contract (the French fonds communs de placement, “FCP”,
is an example). Common to all of these is that investors hold
shares or units in the CIU, but the CIU may be open-ended or
closed-ended.
Open-ended means that the CIU has variable capital. The
number of shares in issue continually changes as new shares are
issued to new investors and shares are cancelled when investors
decide to cash them in. The shares are regularly valued (often
daily) as being the net asset value (NAV) of the fund, divided by
the number of shares in issue.
Closed-ended means that the CIU has fixed capital. Following
an initial issue of shares, the number of shares in issue remains
fixed (subject to further one-off issues or share buy-backs).
Unlike an open-ended CIU, there is no requirement to redeem shares
from investors who wish to cash them in. Rather, the shares are
traded on a stock exchange so that investors can buy and sell them
at the market rate. This market rate may be higher or lower than
the corresponding NAV, in which case the shares are said to be
trading at a premium or discount to the NAV.
