Vested Interest

Reviewed by Annapoorna | Updated on Aug 27, 2020

Meaning of Vested Interest

In general, a vested interest refers to a personal stake or involvement in a project, investment, or result. In finance, vested interest is the lawful right of an individual or entity sometime in the future to gain access to tangible or intangible property, such as money, stocks, bonds, mutual funds, and other securities.

Usually, there is a vesting period or a timespan before the claimant can access the asset or the property.

Vested Interest Explained

Depending on the context, the term "vested interest" can mean many different things. For individuals who have a right/claim to own a piece of property without relying on anything else, there is a vested interest even if the person does not own the asset at once. Employee stock option plans have vesting period for employees before they exercise the options.

Therefore, interest is granted whether the title or right of the asset may be passed to another party in the present or the future. It implies that if there are no limitations to its ownership, an individual or other organisation can have a vested interest in a particular tangible or intangible asset.

The amount of time an individual or organisation has to wait in order to exercise ownership on the asset is known as the vesting period. The company or person holding the title to the asset normally prescribes that period. In profit-sharing arrangements, for instance, some businesses can set up vesting periods of three to five years for employees.

In some cases, there is no vesting period, which means the interest is immediately transferred.

Difference Between Vested Interest and Vested-in-Interest

One should not confuse vested interest with vested-in-interest. The latter word refers to groups, such as trusts, as opposed to special interests. If they do not have to fulfil any conditions for their benefit to take effect, the beneficiary of a trust is vested in benefit.

In the former case, the beneficiary has a present claim to future enjoyment, such as the right to property when the value of another beneficiary ends. In this scenario, the beneficiary would have access to the property upon the death of the primary beneficiary.