A mutual fund family is a group of funds managed and marketed by the same company. Most fund companies offer a diverse array of funds within their fund families so that investors can diversify investments while working with the same company.
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 called Sound Investments created a mutual fund management subsidiary and had that subsidiary sponsor three new mutual funds:
- The Sound Investments Stock Fund
- The Sound Investments Bond Fund
- The Sound Investments 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, and they are obviously focused on different investment strategies. But all three would be part of the Sound Investments fund family. One investor investing in Sound Investments would have access to all three of these funds.
How Mutual Fund Families Work
It may seem somewhat inefficient to create multiple mutual funds, but mutual fund families are very effective. 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 the fund manager is reading the report of a company such as Diageo—the owner of many popular beer and liquor brands—and it was undervalued at the time, they 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, a company such as Berkshire Hathaway 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.
When a fund manager is overseeing several funds in a family, they can more efficiently choose to allocate certain stocks to multiple different funds based on the fund 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.
Pros and Cons of Investing in One Mutual Fund Family
Higher comfort level
Easier to diversify by investing in multiple funds
May have special fund access
Slightly higher potential for losses
Limited to a single investment style
- Higher comfort level: When you stick with one fund family, you become familiar with that company's management and investing style. This can create trust and make you more comfortable choosing funds. Most fund families have a wide array of investment options.
- Lower costs: Because you have multiple funds within the same family, selling and buying shares across the family will generally cost less than investing in funds with different companies. Some funds will even allow shareholders to invest in other mutual funds within the mutual fund family at lower minimum levels.
- Easier to diversify by investing in multiple funds: You can usually set up your account to withdraw money from your bank and automatically disperse it across several funds within the same family at no extra charge.
- May have special fund access: 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.
It's important to read the prospectus to find out how inter-family fund transfers work on a case-by-case basis
- Slightly higher potential for losses: There is always a chance that a mutual fund company could go bankrupt, leading to some losses if all of your investments are in one place. However, fund investments of up to $500,000 purchased through a brokerage are insured under the Securities Investor Protection Corporation (SIPC). Additionally, in most cases, the Investment Company Act of 1940 protects mutual fund money from creditors because mutual fund assets are held independently from the company itself.
- Limited to a single investment style: Certain fund families may be prone to specific styles of investing. If you're not exposed to other fund families, you may miss out on different approaches.
- Mixed performance: Just because the large-cap fund in a particular fund family performs well doesn't mean its international fund will. Be sure you know how any individual funds perform before you invest in them.
- A mutual fund family is a group of funds managed and overseen by the same company, such as Fidelity or JPMorgan Chase.
- Fund managers create funds with different objectives and buy stocks to fit their various funds, and investors can purchase shares of any funds within the family.
- Investing in one fund family can be a simpler, cost-effective way to diversify, but it may limit investment performance and slightly increase exposure to some risks.