What Is a Mutual Fund Family?
There are many 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 an 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 a Mutual Fund Family
There are several benefits for those who want to keep their money invested within a single mutual fund family.
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Many mutual funds will allow you to have money automatically withdrawn from a checking or savings account and split among different mutual funds within a mutual fund family at no charge.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 a fund manager were to sit in a room all day and value companies, running multiple mutual funds wouldn't take much more effort than running a single mutual fund because their buy and sell decisions could be based on the type of stock or other security they're examining.
Imagine this same manager runs 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 you are reading the report of a company like Diageo—the owner of many popular beer and liquor brands— and it was undervalued at the time, you 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 you're 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 dividends to shareholders, and it isn't based overseas.
A mutual fund family meets certain criteria. In this example, there are four—Vice, International, Blue Chip, and High Quality. To place a buy order and include it in the family, the fund you wish to purchase must meet one of the criteria.
The advantage of this is that it allows the individual shareholder to decide for themselves the type of assets that are most appropriate for their 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.