Commingled funds and mutual funds are both professionally managed investment vehicles that combine the assets of numerous investors. Both fund types adhere to a defined investment strategy, and could each be buying the exact same stocks and bonds in hopes of fetching the same returns. That's about where the similarities end, because each fund type follows a different set of rules when it comes to transparency. In some respects, the funds are competing for the same clientele, but mutual funds are available to a wider audience than commingled funds.
Mutual funds are open to retail investors, which are individuals, and to institutions. In 2011, the worldwide mutual fund industry oversaw $23.8 trillion, according to the Investment Company Institute. Depending on the mutual fund type, investors can obtain units, or positions, in a fund either directly from the mutual fund firm or through a stock broker. Mutual funds calculate their net asset value each trading day, so you don't have to wonder how much your investment is worth. Mutual funds that invest in dividend-paying companies pass those proceeds to shareholders each quarter.
While you might see a television commercial advertising a mutual fund family of funds, you're not likely to see investment firms advertising their commingled funds. That's because commingled funds aren't for the mainstream, but that doesn't make them any less relevant. Commingled funds are reserved for members of employer-sponsored qualified retirement plans. They target a smaller audiencethan mutual funds, and they tend to have fewer clients. Commingled funds also take the liberty of redirecting any dividend proceeds back into the funds instead of spreading the earnings around to clients.
According to a 2007 article on the Pensions and Investments website, retirement industry participants were preparing for a shift away from retail mutual funds and toward commingled funds in retirement accounts. Retirement plan administrators and finance professionals were responding to data suggesting that the number of defined contribution retirement plans, such as 401(k) plans, offering commingled funds increased by 8 percent in the three years leading up to 2006. Meanwhile, the number of mutual funds offered in retirement plans declined in the same period.
Advantage and Disadvantage
When it comes to convenience, mutual funds have the advantage. You can learn details about a mutual fund's fees, trading history and investment strategy in a single document known as a prospectus. In fact, mutual funds are required by their governing body -- the U.S. Securities and Exchange Commission -- to furnish you with the document when you first invest. Commingled funds, while regulated, are exempt from the laws that govern mutual funds because they don't target individuals. That makes it less convenient to find out details surrounding a fund's size and performance, but you can call the investment firm directly to learn these details.
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