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What is a Commingled Fund?

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    Financial planning is rarely straightforward. With an impressive variety of investment choices, extensive research is always a big part of the selection process. That means regardless of what you are trying to save up for — be it retirement or a business scaling project — you need to know where your money works the best.

    Knowing the difference between commingled funds, mutual funds, and other investment options can help you make the right choices when planning your finances this year.  Let’s take a closer look at commingled funds and what they can mean for your finances during the 2020 COVID-19 outbreak, political uncertainty, and beyond.

    Defining the Commingled Fund

    A commingled fund — also known as a pooled fund — is a variation of a mutual fund. Here are a few things to keep in mind:

    • It’s a single fund or account which pools together assets from multiple accounts or investors.
    • The goal of pooling these accounts is to reduce their management costs and explore additional investment opportunities.
    • A commingled fund is managed by a professional fund manager (or multiple fund managers).
    • It usually consists of stocks, bonds, and cash.
    • A group of investors decides to combine their assets to start a commingled fund.
    • These individuals usually have a significant number of assets available, which is why these funds are generally sizable. 

    Several other attributes help set mutual funds commingled apart from other accounts, and those include public availability, regulations, and liquidity. Let’s dig into those elements to understand how they impact a comingled fund designation.

    Public Availability

    It’s important to understand that other investors can buy into a commingled fund once such a pooled fund is set up. However, unlike mutual funds, which are publicly available to any investor, these funds aren’t widely publicized. These funds do not trade publicly, which means only those with a certain relationship with the investors can buy in. The most common example of a commingled fund is a 401 (k) plan, followed by pension funds and insurance plans.  

    Regulation

    Besides publicity, another major difference between mutual and commingled funds is regulation. Commingled funds aren’t regulated by the Securities and Exchange Commission (SEC) like mutual funds are, which means they don’t have extensive disclosure requirements either. Before you decide to become a mutual fund investor, for example, you can download its prospectus and learn detailed information about the security to have a better idea of what you are buying into.

    Commingled funds are overseen by the Office of the Comptroller of the Currency (OCC) and state regulators. An investor gets access to a Summary Plan Description (SPD) when joining the fund, which contains the commingled fund objective, investment strategy, and fund manager information. It’s not as detailed as the prospectus.

    Liquidity

    Compared to mutual funds and separate accounts, commingled funds have low liquidity. These funds generally don’t hold as many assets as mutual funds do because they aren’t publicly traded. In some cases, investors may need to wait until a certain date to withdraw their assets.

    Low liquidity makes commingled funds a long-term investment opportunity — especially if you don’t need to maintain immediate access to your assets. This fund type is an appealing option thanks to its low volatility.

    hands together symbolizing a commingled fund

    4 Benefits of a Commingled Fund

    When exploring investment opportunities presented by commingled funds, consider these advantages (among  others). You’ll want to speak with a wealth management professional to see if such a mutual fund is right for your portfolio.

    1. Lower Cost

    Commingled funds aren’t as heavily regulated as mutual funds, so legal expenses and operating costs are lower. Low operating costs result in higher returns. A commingled fund and a mutual fund with identical performance would have different net returns since the former’s maintenance expenses are lower, for example.  

    2. Professional Management

    A professional manager — or sometimes a team of managers — handles commingled funds. Investors benefit from their expertise and knowledge, especially if their managers have solid track records. Their experience can usually translate into higher returns.

    3. Diversification and Low Risks

    Commingled funds typically consist of a diversified collection of securities. Diversifying the investment means you have a better chance to benefit from lower market risks. That process often diversification depends on the fund manager’s strategy as they are, in many cases, exposed to a variety of stocks, bonds, and other investments. Commingled fund investors have easier access to certain investment opportunities with high minimal buy-ins.

    4. Efficiency

    The main purpose of establishing a commingled fund is efficiency. A team of managers uses their top ideas for one fund rather than spreading them over several individual accounts.

    Overall, these funds blend the best of the best into one account, making the management more efficient.

    3 Drawbacks of a Commingled Fund

    While commingled funds offer low-cost and diversified investment opportunities, they come with several disadvantages.

    1. Lack of Transparency

    Since commingled funds don’t trade on public exchanges, you may not always know how they perform and you can’t track that performance in real time. The data can be a day old when it becomes available. The absence of heavy regulation means you don’t get extensive disclosure before making an investment. If you need access to detailed information, such a fund may not be the right choice for you.

    2. Low Liquidity

    Compared to other types of mutual funds, commingled funds generally have fewer assets under management. That makes it tough to withdraw money in case you need to liquidate some of your assets quickly.

    3. Complicated Access

    Since commingled funds aren’t publicly available, you can’t access one without having a certain relationship with one of the existing investors.

    Is a Commingled Fund Right for You?

    Commingled funds are generally an excellent way to complement your investment approach. If you are contemplating this option, consider the following questions.

    • Are you looking for a long-term investment opportunity?
    • Do you want to diversify your investments? 
    • Do you want highly efficient investment options with low overhead costs?
    • Do you feel comfortable with a certain lack of transparency and liquidity?


    If you answered yes to all four, you may want to talk to a wealth manager about adding commingled funds to your portfolio.

    A commingled fund can be a smart choice for businesses and individuals with long-term investment plans. Commingled are superior to mutual funds in performance and costs, for example, and provide an excellent diversification opportunity. They also come with a lack of transparency and low liquidity, though, which means you may need to carefully consider how they fit into your individual financial strategy.

    If you’d like to learn more about commingled funds and whether they are right for you,  contact Bogart Wealth today! Our wealth management experts are always happy to answer your questions about your commingled funds, investments, portfolio management, and beyond. 

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