What Is a Commingled Fund?

Definition & Examples of a Commingled Fund

Investors discuss how to use commingled funds

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A commingled fund is a single fund or account that consists of assets combined from multiple accounts. These types of accounts are used to reduce the costs of managing multiple funds and offer centralized professional management of multiple investors' assets. A common example is a workplace retirement fund.

Here's what you need to know about commingled funds, how they compare to mutual funds, and some of the pros and cons of this investment strategy.

What Is a Commingled Fund?

Commingled funds are professionally managed funds that pool assets from multiple investors. This gives the fund greater leverage to buy more securities than a single investor would be able to afford on their own. In this way, they function similarly to a mutual fund or exchange-traded fund (ETF), but there are major differences when it comes to the regulation and liquidity of commingled funds.

  • Alternate name: Pooled funds
  • Alternate definition: In other uses, commingling can refer to the illegal use of funds for something other than their original intention.

How Does a Commingled Fund Work?

Commingled funds are created when a group of investors decides they want to pool their assets. Generally, these investors must have a significant amount of funds at their collective disposal to make it worth the process of starting a commingled fund.

If your work offers a 401(k) plan, that's a form of a commingled fund. Pension funds are another common type of commingled fund, as are insurance policies and other institutional accounts.

After the initial group of investors, such as a company's upper management, creates the commingled fund, people with a relationship to those investors may be able to buy-in. For example, a new employee at a company will get a description of the 401(k) plan offered and how they can invest in it.

Before investing, investors should seek to fully understand the commingled fund's objectives and consider issues of liquidity. Commingled funds may not be ideal for short-term investing objectives, such as emergency funds, because it may not be easy to withdraw funds. You may have to wait for a certain date to withdraw, for example, or there may be a significant delay to any withdrawal orders.

Commingled Funds vs. Mutual Funds

Commingled Funds vs. Mutual Funds
Commingled Funds Mutual Funds
Combine investors' assets Combine investors' assets
Typically invest primarily in stocks and bonds Typically invest primarily in stocks and bonds
Controlled by a fund manager or management team Controlled by a fund manager or management team
Not widely available Widely available and easy to trade
Overseen by Office of the Comptroller of the Currency Overseen by Securities and Exchange Commission
Details of fund outlined in summary plan description Details of fund outlined in prospectus
Expenses tend to be lower than mutual funds Expenses tend to be higher than commingled funds

Commingled funds and mutual funds share similar attributes. Both bring all of an investor's assets into a centralized fund management system.

Commingled funds and mutual funds both consist of assets that come from multiple accounts, clients, or investors. Both types of funds typically invest in securities of the primary asset classes—stocks, bonds, and cash.

Like mutual funds, commingled funds can be managed by a single manager or a team. The management decides which securities to buy for the portfolio and develops the strategies for growth.

Fund centralization makes management of assets in the fund simpler and less costly.

While there are many similarities, there are major differences, as well. A major difference is that mutual funds are generally easy for any individual investor to buy into. You don't need to have a personal connection to those involved, you can simply find a broker that sells the mutual fund and place an order. Commingled funds, on the other hand, aren't as easy to trade in or out of. You usually have to have a personal connection to the entity controlling the funds (like working for an employer that offers a commingled funds retirement plan).

They're also regulated by different agencies. Mutual funds must register with the Securities and Exchange Commission (SEC), whereas commingled funds are not registered securities. Instead, the Office of the Comptroller of the Currency and state regulators have oversight of commingled funds.

Commingled funds may offer their investors and prospective investors a summary plan description (SPD), whereas mutual funds are required to provide a prospectus.

Since commingled funds aren't overseen by the SEC, they require less legal structure and oversight, so expenses tend to be lower, especially when compared to actively-managed mutual funds. 

Pros and Cons of Commingled Funds

  • Efficient

  • Low costs

  • Easy way to diversify

  • Lack of transparency

  • Lack of liquidity

Pros Explained

  • Efficient: Commingled funds are established for purposes of efficiency, where an advisor, money manager, or team of managers can use all of their best ideas for one account, rather than dozens or hundreds of individual accounts. This arrangement can be a win-win situation for the client and advisor.
  • Low costs: By pooling funds under a single management team, investors share the costs of management and investing. This effectively means that investors save money.
  • Easy way to diversify: Along with the cost reductions, and similar to mutual funds, commingled funds often consist of a diversified blend of securities. Diversification can offer lower market risk, compared to a portfolio that only invests in large-cap stocks, for instance.

Cons Explained

  • Lack of transparency: Since they are not registered with the SEC, a commingled fund's performance is not able to be monitored through public monitoring channels. There won't be any ticker symbols, and updated financial information won't be posted on any major financial research sites. This means that investors have to rely on the management firm to keep them in the loop, and if managers aren't especially communicative, then an investor may have to work extra hard to find out more information about their investments.
  • Lack of liquidity: Since commingled funds aren't publicly available and may not have significant cash on hand, there may be restrictions on how quickly clients can access cash. This reduces the liquidity of the investor's assets, requiring them to keep other more liquid investments handy if they believe they might need cash soon.

Key Takeaways

  • Commingled funds are single accounts that contain assets from multiple investors.
  • Commingled funds are often institutional accounts, such as a 401(k) plan for a company.
  • Commingled funds are similar to mutual funds, but they are typically less regulated and less liquid.