A collective investment scheme (as opposed to an individual), that invests funds arising from deposits, premiums, contributions etc.. Examples are insurance companies, unit trusts and pension funds. Big institutions gather small amounts of money from hundreds of thousands or even millions of individuals every month which they then place on the JSE and other markets. They account for approximately 90% of all trades on the JSE. Private investors account for the rest. Institutional funds are managed by fund managers who are highly qualified and very well paid. Typically institutions are constrained by the size of their funds. They cannot invest in smaller companies because they have insufficient volume traded on the JSE and because their investment would be insignificant in the total portfolio. So institutions invest in larger blue chip shares which have become known as the “institutional stocks” They are most those in the JSE top 40 index and some from the mid-cap index. Private investors can optimize their share selections from a much great range of shares.
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