Commingled Fund Vs. Mutual Fund

By: Shelly Morgan | Reviewed by: Ryan Cockerham, CISI Capital Markets and Corporate Finance | Updated March 31, 2019

Commingled and mutual funds are slightly different approaches to investment.

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As the name suggests, a commingled fund is one that combines assets from multiple accounts into one. A mutual fund also pools varying assets into one. There are several differences in the two types of investments, however, including that commingled funds are for retirement accounts instead of retail investors, they're regulated differently and it's tougher to research them since they aren't publicly traded.

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Although commingled and mutual funds both combine assets from multiple sources into one, they are very different. Mutual funds are for retail investment, while commingled funds are seen in situations like retirement accounts.

Commingled Account Versus Mutual Fund

"Commingled fund" is a term that describes a particular type of mutual fund that is exempt from many of the requirements of other mutual funds. One way to distinguish between these fund types is to look at the regulatory framework with which each must comply. This framework reveals the constraints placed upon the fund manager. While fund managers with fewer restraints can conceivably make more money than those with more constraints, they can also present you with unanticipated losses, because they operate with fewer reporting requirements.

Exploring Fund Similarities

Before you can look at the difference between pooled funds and mutual funds, it can help to review the similarities. Many investment experts categorize commingled funds as a type of mutual fund. Both are investment instruments containing stocks, bonds or both. Both fund types are managed by fund managers whose job is to make the fund profitable. The fund manager buys and sells assets in a manner consistent with the nature of the fund, and investors purchase fund shares.

Evaluating Fund Differences

Mutual funds can be purchased by institutional and individual investors. Commingled funds -- also known as pooled funds -- can only be purchased by institutional investors involved in 401(k) plans and other requirement plans. Unlike other types of mutual funds, commingled funds are not regulated by the U.S. Securities and Exchange Commission. Instead, they are overseen by the U.S. Office of the Comptroller of the Currency and state regulators. They are not publicly traded, making it difficult to research them.

On the other hand, the difference between pooled funds and mutual funds also means that mutual funds face much closer scrutiny than funds in a commingled account. Those managing mutual funds must deal with disclosure requirements as required by the SEC, and they must pay close attention to the requirements that stem from the Investment Company Act of 1940.

Managing Potential Risks

Pooled funds are generally seen as more risky than other mutual funds. Although the lack of reporting requirements makes unethical practices more possible, the relative risk is not necessarily more than that of a mutual fund that invests in similar stocks or bonds. The best way to evaluate this risk is to look at how the fund behaved over a long period. Assessing how the fund performed under adverse market conditions suggests how it might perform under comparable conditions in the future.

Advantages and Disadvantages

Another difference between pooled funds and mutual funds is that with pooled funds, you'll likely see lower fees and legal charges. This stems from the fact that they aren't as heavily regulated, reducing the need for ongoing due diligence. This can be a disadvantage, though, since an investor with a commingled account may not get the ongoing information a mutual fund investor would receive. There isn't even a ticker symbol associated with commingled funds, which means you won't be able to follow it like you would if you'd invested in a mutual fund.

Other Usages of Term

The term "commingling funds" can also refer to mixing money from various sources in a single account. For example, a savings account that contains funds owned by two or more people is a commingled account. Used this way, the commingled fund does not refer to an investment instrument. Problems with commingled funds typically arise during divorce proceedings or when a business partnership dissolves.

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About the Author

Shelly Morgan has been writing and editing for over 25 years for various medical and scientific publications. Although she began her professional career in pharmacological research, Morgan turned to patent law where she specialized in prosecuting patents for medical devices. She also writes about renal disease and hypertension for several nonprofits aimed at educating and supporting kidney patients.

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