Full Form of CIF :
Cost Insurance and Freight
CIF Full Form is Cost Insurance and Freight. This refers to the trade term where the seller, manufacturer, or sender of goods bears the cost, freight, and insurance expenses. In shipment, CIF is a part of the contract of sale of goods among several other contracts.
CIF is applicable to all shipments on water and on land. Whenever goods are bought and transported through ships, buyers have to make sure that the goods are shipped under CIF terms. This indicates that the insurance and freight charges are added to the actual cost of the goods to be shipped. Due to the insurance factor, CIF is very apt for International shipments.
CIF Full Form: Collective Investment Fund
CIF Full Form stands for Collective Investment Fund. The CIF or collective investment funds are also called CIT or collective investment trust or collective trust funds. In general, it is a pooled investment. A trust is responsible for its organization, and a trust company or a bank is in charge of its maintenance. The CIFs are made for enhancing the management of an investment. A particular strategy of investment is used to combine several assets from several accounts, which ultimately results in the formation of a single fund.
The CIF’s sponsors pool or commingle the assets for taking benefits of the scale economies for offering innovative and diverse opportunities for investments, increased management of risks and decreased expenses to the participating investors. The operation, as well as the administration of each fund, is done as per the governing document of the applicable trusts. The documents include the statement of characteristics of the fund and the plan document. The popularity of the CIFs is increasing. There are multiple reasons for this popularity, such as improvement in transparency and reporting, regular evaluation, flexibility in prices, consultant familiarity, etc.
Types of CIF
There are two types of collective trusts, the discussion of which are provided below:
The A1 funds are also called common trust funds. In this, the assets of numerous trust accounts are pooled. These accounts are the responsibility of a bank, and it holds them as administrator, trustee, guardian or executor. It is not necessary for the participants of these funds to be exempted from taxes, although those trustees that are not exempted can participate in it too. The investors usually include trusts, corporations, foundations, and endowments. The investment from investors like asset aggregators and net-worth individuals are accepted by certain funds of this category. The trust company or bank must be aware of the impact made by the accepting individuals and other investors under the laws of banking, tax, and securities.
The A2 funds are also called collective investment trusts or collective investment funds. This article is discussing the A2 funds in detail.
Risks involved in CIF
The risks are those events that have the potential of adversely affecting the capital or earnings of a bank, and value of an enterprise or franchise. There are eight categories related to risks that are utilized for the purpose of supervising banks. These are strategic, operational, liquidity, credit, reputation, compliance, price and interest rate. There are numerous risks involved with the CIFs. Out of all of them, the compliance and operational risks are discussed below in detail.
While operating a CIF, it is important for a bank to comply with the law. If this is not done, the bank may face supervisory action and lawsuits of the regulatory nature. The estimation of the regulatory action and litigation’s financial impact is severe. However, these can decrease the value of the franchise and lower its capital and earnings. Additionally, the possibility of publicizing of these situations in the market area of the bank is very high, and this, in turn, can severely affect the reputation of the bank.The bank must allow only those account assets that are eligible for lowering the possibility of risks. The bank must also follow interpretations and regulations strictly.
During the administered of a CIF, a significant number of transactions may be processed by the bank. In this case, numerous reports must be produced by it. For instance, while the administration of a CIF; the bank must keep an account of the withdrawals done and the admissions to the CIF. It is also responsible for maintaining an account of the sale as well as the purchase of the investment of CIFs, and also of the distribution and receipt of the allocation of the capital gains, interest, and dividends.
The bank is also responsible for preparing the valuation of those assets every three months that are ready for marketing. The same must be done every year for those assets that are not ready for the same. In every twelve-month period, the bank must prepare the financial report. It is also responsible for the execution of the contracts of 3rd party members and overseeing their overall performance.
The portfolio investments may consist of both illiquid as well as liquid assets from the foreign and domestic markets. These assets depend on the variety and the number of CIFs. The sophisticated systems of information are needed for banks that have CIFs with complexity and a range of investments. In case a bank is unable to safeguard the assets of a CIF properly or fails its transaction processes, the resultant losses can lead to the litigation of clients, high loss of finances and reputation of the bank.
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