Collective Investment Market on the Rise: Global Trends and Prospects

Millions of private investors around the world are channeling their funds through collective investment vehicles – from traditional mutual funds to exchange-traded funds (ETFs). The collective investment market is rapidly developing and becoming a significant segment of the financial markets. The accessibility of such instruments is increasing, and professional management along with diversification makes them appealing even to novice investors. In this article, we will explore what this market entails, its scale, key trends, and future prospects (including in Russia and the CIS).

What is Collective Investing?

Collective investing is a model in which the funds of numerous investors are pooled into a single portfolio managed by a professional management firm. This approach allows even those with limited capital to access a diversified set of assets – stocks, bonds, and other securities – by participating in a large fund. Professional managers oversee the combined capital of investors, aiming to enhance investment growth while optimizing the balance between returns and risks.

Main Types of Collective Investment Funds

The global market offers a wide range of collective investment instruments. The most common types include:

• Open-End Mutual Funds. Similar to mutual funds, these allow investors to freely buy or sell shares at the current net asset value. Such funds invest in stocks, bonds, and other asset classes, adhering to various strategies (from conservative bond holdings to aggressive equity positions).
• Exchange-Traded Funds (ETFs). These are traded on exchanges and typically track a specific index or basket of assets. ETFs combine the benefits of a diversified portfolio with stock liquidity, enabling investors to easily enter and exit positions in real time on the exchange.
• Closed-End Funds. These are funds with a fixed number of shares and a limited lifespan, after which the assets are liquidated, and the proceeds returned to investors. Examples include closed-end real estate funds or venture capital. Shares in these funds cannot be redeemed until maturity, although they can sometimes be sold on the secondary market.

In addition to these, there are also pension funds, hedge funds, and other alternative structures. However, such instruments are only available to qualified investors or institutional participants. For most individual investors, mutual funds and ETFs serve as the most comprehensible and accessible options.

Scale and Growth of the Global Market

The global collective investment market has reached impressive dimensions, with total assets under management by investment funds worldwide amounting to tens of trillions of dollars. The largest segment remains the United States, home to about half of the world’s mutual fund and ETF assets; it is estimated that more than half of American households have investments in investment funds. Europe and Asia are also showing a strong growth trajectory in the collective investment industry.

The market’s growth is fueled by both new investor inflows and increasing asset values. In environments with low interest rates, capital actively flows into equity funds in search of yields, while during periods of rising rates, it shifts to more conservative bond and money market funds. Nevertheless, the upward trend remains intact: the collective investment industry continues to attract capital globally, supported by the introduction of new products and an expanded range of index funds.

Advantages of Collective Investment for Investors

The popularity of collective investments can be attributed to several significant advantages for private investors:

1. Professional Management. Fund assets are managed by experienced portfolio managers who have the knowledge and access to analytical information, enhancing the likelihood of successful investment decisions.
2. Portfolio Diversification. The fund’s assets are distributed across a wide array of investments. Even with modest contributions, an investor achieves diversification, reducing dependency on any single stock or market sector.
3. Economies of Scale. The collective nature of investing lowers the costs per unit of investment. Fees and operating expenses are spread across all shareholders, leading to lower costs for each investor compared to self-managing a similar portfolio.

Shift to Passive Strategies and Fee Reductions

One of the main trends in the collective investment industry has been the shift towards passive investing. Investors increasingly prefer index funds and ETFs that passively track the market rather than active funds attempting to outperform indices. This trend is driven by, firstly, the lower fees associated with passive instruments, and secondly, statistics showing that only a small number of actively managed funds consistently outperform the market over the long term. The share of passive strategies is steadily increasing, with major providers attracting significant capital annually through affordable index product lines.

Competition compels traditional players to lower fees and seek new strategies. There is a trend toward converting classic mutual funds into ETF equivalents to offer a more liquid and cost-effective format. Additionally, during periods of high rates, money market funds are again becoming attractive, providing deposit-like returns with minimal risk for conservative investors.

New Products, Technologies, and Sustainable Investing

The collective investment industry is actively embracing innovation. Modern technologies simplify access to funds: through online platforms and mobile applications, investors can initiate investments in selected funds in just minutes. Robo-advisors (automated investment advisors) offer pre-packaged portfolio solutions based on ETFs, making investing simpler and more personalized.

New products and approaches are also emerging. In particular, sustainable investment funds (ESG) are gaining popularity – investors want their money to not only generate financial returns but also benefit the environment and society. In recent years, ESG funds have attracted significant capital.

The Russian Collective Investment Market

The collective investment market in Russia and the CIS is developing dynamically, although it began from a low base. The first mutual funds appeared in the late 1990s and for a long time did not gain substantial public trust. However, in recent years, an increasing number of Russians are considering investment funds as an alternative to bank deposits, especially given limited access to foreign markets in recent times.

In 2024, the industry experienced a notable uplift. The regulator issued a record number of new licenses to management companies, and the total number of management firms exceeded 300 by early 2025. By the end of 2024, the assets of Russian funds reached 24 trillion rubles. Closed-end funds (ZEPIFs) hold a significant market share, which wealthy investors use to manage capital domestically amidst closed foreign capital markets.

The retail segment is also growing: the total assets of public funds surpassed 1.9 trillion rubles for the first time by the end of 2024 (+73% year-on-year). The most popular are money market ETFs that provide deposit-like returns with minimal risk. Nevertheless, the proportion of the population investing in funds remains relatively low, and many management companies still focus on working with large clients. Limited trust, insufficient financial literacy, and competition from traditional bank products hinder the wider adoption of collective investments.

Risks and Investor Protection

Despite all the advantages, collective investments are not without risks. The value of fund shares directly correlates with market conditions: a decline in stock or bond prices leads to a decrease in the portfolio's worth. Investors must be prepared for fluctuations in returns, particularly in the short term. Additionally, although assets are managed by professionals, human factors and strategic errors can negatively impact outcomes. Investors should also consider the level of fees: excessively high management fees can erode long-term investment returns.

Conversely, stringent regulatory oversight enhances the security of collective investments. Legislation establishes strict requirements for asset structure, disclosure of information, capital of management companies, and their accountability – all of which bolster the security of collective investments.

Future Development Prospects

Looking ahead, further growth of collective investments is anticipated both globally and in the CIS countries. Capital will continue to flow from individual securities into funds. The influx of funds into index and exchange-traded funds is likely to persist, reinforcing the position of passive strategies. Active managers, in turn, will aim to improve efficiency through technology and offer more differentiated products to remain competitive.

In Russia, the burgeoning popularity of investment funds will hinge on increasing financial literacy among the population and building trust in financial institutions. With government support (for example, tax incentives for investors) and stable economic development, collective investments have the potential to occupy a more significant place in citizens’ savings. New funds, including sector-specific ones, are expected to emerge. In the long term, the collective investment market will play an increasingly vital role in mobilizing capital and growing private savings.