Institutional class mutual funds, or institutional class shares in a mutual fund, are only made available to investors willing to commit a large amount of money to the fund. In return for this large commitment, an investor often receives lower costs than smaller-scale investors. Pension and retirement funds for government institutions and private companies most often use these funds. Some wealthy individual investors may also be able to qualify for institutional funds. Remember that investing in mutual funds carries risk. Do not invest more than you can afford to lose, and consider speaking with a financial professional before making any investment decisions.
Pricing and Fees
The primary benefit to buying institutional classes of a mutual fund is lower costs. For example, Vanguard's Wellington mutual fund, which holds stocks and bonds, has an expense ratio of 0.34 percent for investors who will invest at least $10,000. However, under the company's institutional classes, which are called "Admiral" shares, any investor spending $100,000 or more can pay a lower expense ratio of 0.23 percent.
Some investment managers will only allow registered financial institutions and asset managers to purchase institutional funds. Others, including Vanguard, will allow a private investor to obtain funds at institutional prices if she is able to commit to purchasing the required amount.
BlackRock, which is one of the nation's largest investment mangers in terms of asset size, offers funds designed solely for institutions, not for wealthy private investors. Though some of the funds have investment levels at $100,000, others carry a minimum investment level of $10 million.
Investment Securities held by Institutional-Class Funds
Because of the large variety of available institutional-class funds, it is possible to find a type of fund that invests in virtually every major type of investment security. The most conservative funds operate as money market funds, holding very safe investments such as Certificates of Deposit (CDs) or very short-term U.S. Treasury bills. Slightly more risky funds hold bonds, typically with a focus on either government-issued bonds or bonds issued by private companies. Other institutional-class funds hold a mix of bonds and stocks, while some are focused solely on stocks or alternative investments such as real estate or commodities.
- U.S. Securities and Exchange Commission: Mutual Fund Classes
- Vanguard: Product Overview
- BlackRock: Funds for Institutions
- The Free Dictionary: "Institutional Fund." Accessed January 31, 2020.
- Vanguard. "Index funds vs actively-managed funds." Accessed January 31, 2020.
Harris Krumme has been writing professionally since 2007 and has been published in "The Daily Progress" and "The Virginian-Pilot," two newspapers in Virginia. He has covered macroeconomic subjects such as the Federal Reserve, monetary policy, and stock markets. He holds a Bachelor of Arts in journalism from Washington and Lee University.