Collective investment schemes as alternatives for small investors in the ECCU

Mutual funds are increasing in popularity globally as an avenue for small investors to enhance wealth and investment sophistication and as a means to deepen local securities markets. In the wake of challenges in the regional insurance sector, the development of collective investment schemes (CISs) is gaining greater attention. This paper examines the feasibility of CISs as an option for small investors in the ECCU. The analysis underscores the paradox of CISs, which, on one hand, may be beneficial to financial development, but conversely, may serve as substitutes for or displace traditional banking sector deposits. The paper attempts to shed further light on the region’s financial deepening process by empirically examining the impact of interest rates and risk in the savings and investment decisions of ECCU households using a combination of cointegration approaches. The paper finds limited evidence of higher returns affecting the saving decisions of ECCU households. In encouraging the development of the sector therefore, the paper highlights the regulatory framework as a prerequisite for enhancing investor protection, mitigating potential risks and enhancing financial stability.