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 more than one account. They cost less to manage than multiple funds. These accounts offer one central professional keeper of multiple investors' assets. A common type 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.

What Is a Commingled Fund?

Commingled funds are professionally managed funds. They pool assets from multiple investors. This gives the fund greater leverage to buy more securities than a single investor could afford on their own. In this way, they function like a mutual fund or exchange-traded fund (ETF). Still, 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.

The first group of investors, such as a firm's upper management, creates the commingled fund. Once done, people connected to those investors may be able to buy in. For instance, if you are a new worker at a company, you will get a description of the 401(k) plan offered and how you can invest in it.

Seek first to fully grasp the commingled fund's objectives and look at the issues of liquidity. Commingled funds may not be the ideal way to meet a short-term goal such as building an emergency fund. You may have to wait until a certain date to withdraw funds, or deal with some other long delay.

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 are the same in some ways. 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.

The fund's central asset design is simpler and less costly to manage.

There are major ways the funds differ, as well. A major difference is that mutual funds tend to be easy for any single investor to buy into. You don't need to have a personal connection to those involved. Just 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 must have a personal connection to the party that controls the funds. That could be working for an employer that offers a retirement plan of commingled funds.

The two types of funds are also governed by different agencies. Mutual funds must register with the Securities and Exchange Commission (SEC). Commingled funds do not. The Office of the Comptroller of the Currency and state regulators oversee commingled funds.

Commingled funds may offer their investors and prospective investors a summary plan description (SPD). Mutual funds must provide a prospectus.

Since commingled funds aren't overseen by the SEC, they require less legal structure. That tends to keep costs 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 set up to be efficient. An advisor, money manager, or team of managers can use all their best ideas for one account, rather than dozens or hundreds of individual accounts. This can be a win-win for the client and advisor.
  • Low costs: By pooling funds under a single management team, investors share the costs to mange and invest. This saves you money.
  • Easy way to diversify: Along with the lower costs, and similar to mutual funds, commingled funds often consist of a diversified blend of securities. This can lower the 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 isn't monitored through public channels. There are no ticker symbols, and updated financial data won't be posted on any major financial research sites. Investors must rely on the management firm to keep them in the loop. If managers don't communicate, an investor may have to work extra hard to find out how their investment is doing.
  • Lack of liquidity: Commingled funds aren't publicly traded and may not have significant cash on hand. So there may be restrictions on how quickly clients can access cash. This reduces the liquidity of the assets. It means you must keep other more liquid investments handy if you may need cash in a hurry.

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.