What Is a Commingled Fund?

They share many of the advantages of mutual funds

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A commingled fund is a single fund or account that consists of assets that originally came from multiple accounts that have been combined, or "commingled," into one account. Savers and investors use commingled funds for various reasons, primarily for convenience or efficiency.

With regard to investing, a commingled fund is most commonly one that consists of assets that are pooled together, similar to mutual funds, coming from multiple client accounts. Commingled funds, a type of separate account, can be professionally managed by one or more managers.

Commingled vs. Mutual Funds

Commingled funds and mutual funds share similar attributes, as well as some differences. Here are the primary ways commingled funds and mutual funds are alike:

  • Pooled Assets
    Commingled funds and mutual funds both consist of assets coming from multiple accounts, clients or investors. Both types of funds typically invest in securities of one (or a combination) of the primary asset classes, which are stocks, bonds, and cash.
  • Professional Management
    Like mutual funds, commingled funds can be managed by a single manager or a team of managers. The management decides which securities to buy for the portfolio and determines the timing of trading the securities.

Here are the primary differences between commingled funds and mutual funds:

  • SEC Registration
    Mutual funds must register with the Securities and Exchange Commission, or SEC, whereas commingled funds are not registered securities. It is the U.S. Office of the Comptroller of the Currency and state regulators that have oversight on commingled funds.
  • Expenses
    Since commingled funds require less legal structure and oversight, expenses tend to be lower, especially when compared to actively-managed mutual funds
  • Disclosures and Investor Information
    Commingled funds may offer their investors and prospective investors a Summary Plan Description (SPD), whereas mutual funds are required to provide a prospectus.

Advantages and Disadvantages

Commingled funds share some of the same advantages and disadvantages of mutual funds, while some pros and cons are unique to commingled funds.

Here are the primary advantages of commingled funds:

  • Professional Management
    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 for client and advisor. 
  • Low Expenses
    The efficiency of commingled funds translates into lower costs, which are often lower than average expense ratios of actively-managed mutual funds.
  • Diversification
    Similar to mutual funds, commingled funds often consist of a diversified blend of securities, such as stocks, bonds, and cash. Diversification can offer lower market risk, compared to the conventional portfolio consisting of 10 to 20 large-cap stocks.

Here are a few disadvantages of commingled funds:

  • Low Relative Liquidity
    Unlike mutual funds, investors may not have quick access to cash with a commingled fund. It is because commingled funds don't typically have large amounts in assets under management and, because of this, management may have restrictions on how quickly clients can access cash.
  • Tracking Performance
    In a world where information is available in real time, performance data on commingled funds are not as accessible as mutual funds and exchange-traded fund (ETFs). This is because commingled funds are not registered and don't have ticker symbols that can be tracked on almost any website, as with publicly traded securities.

Bottom Line

Investing in commingled funds can be a smart choice but be sure to do your homework first. Start by reading the fund SPD and checking the experience and background of the fund manager(s). And, as always, be sure that the fund aligns with your personal investment objective and risk tolerance.

It's also smart to be sure that your holding period aligns with the commingled fund's objectives and that you do not have a need for immediate liquidity. In different words, commingled funds may not be ideal for short-term investing objectives, such as emergency funds and time horizons of less than one year.