What Is a Mutual Fund Family?
In What Is a Mutual Fund? you learned the basics of mutual funds and some important terms, including the mutual fund expense ratio, the mutual fund sales load, prospectus, and statement of additional information.
Now, I want to walk you through some of the potential benefits of investing within a mutual fund family rather than diversifying assets across multiple mutual fund companies. When done correctly, investing across a mutual fund family can offer asset class diversification and potentially lower your investing costs.
What Is a Mutual Fund Family?
A mutual fund family is a group of mutual funds that share the same mutual fund sponsor. To help you understand the concept, imagine that my asset management company created a mutual fund management subsidiary and had that subsidiary sponsor three new mutual funds:
- The Joshua Kennon Stock Fund
- The Joshua Kennon Bond Fund
- The Joshua Kennon Real Estate Fund
Each of these mutual funds is unique and has its own investment portfolios. At most mutual fund families, each fund is run by separate portfolio managers. But all three would be part of the "Joshua Kennon" mutual fund family.
The Benefits of Investing Within a Mutual Fund Family
There are several benefits for those who want to keep their money invested within a single mutual fund family. These are:
- A consolidated statement from the mutual fund family itself that details your investment in each of the individual funds. This means less paperwork and a more convenient breakdown of what you own.
- Many mutual fund companies offer a website through which you can move money between the individual funds that make up a mutual fund family. Going back to our example, if you had $100,000 invested in the Joshua Kennon Stock Fund, you might be able to sell shares of it to buy some of the bond fund and real estate fund at no charge. It's important to read the prospectus to find out how inter-family fund transfers work on a case-by-case basis.
- Some funds will allow shareholders to invest in other mutual funds within the mutual fund family at lower minimum levels. This means you get access to funds that you otherwise wouldn't be able to access in exchange for the business you're giving the fund family.
- Many mutual funds will allow you to have money automatically withdrawn from a checking or savings accounts and split among different mutual funds within a mutual fund family at no charge.
- In rare cases, you might be able to invest in a "closed" mutual fund that isn't accepting new shareholders due to an existing investment in a mutual fund family.
The Reasons Fund Companies Create Mutual Fund Families
It may seem somewhat inefficient to create multiple mutual funds, but the idea of a mutual fund family is really sound. For example, if all I did all day was sit in a room and value companies, running multiple mutual funds wouldn't take much more effort than running a single mutual fund because my buy and sell decisions could be based on the type of stock or other security I'm examining.
Imagine that I run four different mutual funds for a major mutual fund family. These are:
- The Vice Fund (alcohol, tobacco, gambling, and defense stocks)
- Blue Chip Dividend Fund (companies with high dividends and strong balance sheets)
- International Value Fund (companies that are undervalued and located outside of the United States)
- High-Quality Intermediate Corporate Bond Fund (bonds of highly rated corporations)
If I'm reading the report of a company like Diageo—owner of many popular beer and liquor brands— and it were undervalued at the time, I might be able to put in buy orders for the first three funds. That's because it would be appropriate to have the company included in the vice fund, the blue chip dividend fund, and the international value fund. However, if I'm reading the report of a company like Berkshire Hathaway, it wouldn't qualify for any of the funds because it isn't a vice stock, it doesn't pay a dividend, and it isn't based overseas.
The advantage of this is that it allows the individual shareholder to decide for himself or herself the type of assets that are most appropriate for his or her portfolio. Large mutual fund companies such as Vanguard and Fidelity have dozens of funds in the mutual fund family covering nearly every possible asset class, asset allocation, and investment strategy you can imagine.
More Information About How to Invest in Mutual Funds
To learn more about how to invest in mutual funds, read The Complete Beginner's Guide to Investing in Mutual Funds.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.