What Is a CIT Investment? A Simple Guide to Collective Investment Trusts
If you’ve ever looked into retirement plans or institutional investment options, you may have come across the term CIT or Collective Investment Trust. But what exactly is a CIT, and how does it work?
Understanding CITs in Simple Terms
A Collective Investment Trust (CIT) is a pooled investment fund, similar to a mutual fund, but available only to qualified retirement plans like 401(k)s or pensions. CITs are managed by banks or trust companies and are not available to individual retail investors.
Key Features of CITs
- Lower Fees: Since CITs don’t have the same regulatory and marketing costs as mutual funds, they often come with lower expense ratios.
- Tax Efficiency: CITs avoid some of the tax implications mutual funds face, making them more efficient for long-term retirement investments.
- Flexibility for Plan Sponsors: Employers can customize CITs to suit their retirement plans’ specific needs.
- Institutional-Only Access: They’re only accessible through employer-sponsored retirement plans, not for direct purchase by individuals.
How Are CITs Different from Mutual Funds?
| Feature | CITs | Mutual Funds |
|---|---|---|
| Available to | Retirement plans only | General public |
| Regulated by | Office of the Comptroller of the Currency (OCC) | SEC |
| Fees | Typically lower | Can be higher |
| Transparency | Less frequent disclosures | Regular public reporting |
Why Do Employers Choose CITs?
Employers often include CITs in their 401(k) offerings because of their lower cost and flexibility. For employees, this can mean better investment options and potentially higher returns over time.
The Bottom Line
CITs are a smart, cost-effective option for retirement investing—but they’re not something you can buy on your own. If your employer offers a 401(k) plan with CIT options, it’s worth exploring how they fit into your long-term financial goals.
