What Are Pooled Funds?

The pooled fund (also known as a managed account or wrap account) is a type of mutual fund that includes the funds of many individual investors. Because so many individuals pool their investments together, they all benefit from lower trading costs per dollar of investment, as well as a more diversified portfolio and professional money management.

Characteristics of a Pooled Fund

Here are a few characteristics that make the pooled fund different than the traditional mutual fund:

  • Higher minimums to invest. By having higher minimums (typically over $150,000), larger investors can customize their account. This allows them to take into consideration their preferred risk tolerance and time horizon, as well as any other specific investment goals they want to address.
  • Additional perks. Some additional perks of these types of funds that you won’t find in the traditional mutual fund include daily portfolio monitoring and balancing and tax planning at investment time, which can create enough flexibility to offset capital gains and losses.

One potential disadvantage of participating in a pooled fund is that capital gains are evenly distributed among its investors. Capital gains are traditionally determined by the amount of money you’ve gained in comparison to what you’ve spent. However, because you’re spending as a group, you’re liable for what you’ve gained as a group, even if your personal contribution wasn’t nearly as much as another investor. This, for some, can be a huge detractor as you might not end up making as much as you’d hoped.

Investors who find that they would rather take on a pooled fund are pleased to discover that very often they are able to switch their traditional mutual fund over at usually no cost (with the exception of possible income tax). Communicating with an investment manager is one of the better ways to learn just how to get yours started.

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