Pooled funds refer to capital raised by several private entities for a particular investment. A pooled fund is similar to a mutual or pension fund. All investors involved in pooled investments usually get an upper hand due to economies of scale, which promotes diversification, reduced trading costs per dollar of investment, and excellent money management. Individual investors benefit from the capital gains, which are distributed equally among all investors.
Many people use pooled funds to invest in mutual funds, bonds, and stocks. Examples of pooled funds include trusts, investment clubs, and partnerships. Pooled funds enable investors to acquire more shares because the pooled accounts they hold allow them to be treated as a single account holder.
Pros and Cons of Pooled Funds
Investors with a pooled fund can use their resources to enjoy the same benefits that large investors have. In addition, pooled funds enable investors to benefit by saving on operation costs. Investors can also use their pooled funds to expand their portfolios.
One of the most significant disadvantages of a pooled fund is that individual investors have less influence over most of the group’s investment decisions. In addition, investors do not share risk levels, goals, ambitions, and exit plans. Pooled investment funds also experience operational delays because the group takes some time before agreeing on certain things like what to purchase or do. The delays can take away opportunities for making profits.
A mutual fund is a pooled investment vehicle made up of several funds from various investors. Mutual funds are normally run by money managers who use the fund’s capital in a bid to reap profits and other monetary benefits for the fund’s investors.
Advantages of Mutual Funds
One of the advantages of mutual funds is that they are not greatly affected by poor performance of a given security. This is because mutual funds have a wide range of securities. This is highly valuable especially for investors who don’t have the knowledge or time to manage their personal portfolios. With mutual funds, investors can reinvest their interest and dividends for shares. The investor’s portfolio grows as they save money.
Disadvantages of Mutual Funds
Investors who finance mutual funds usually give control of their investments to their finance managers. As soon as the fund starts selling private stocks and distributing capital profits, the investor is taxed. If the stocks are sold frequently, the capital profits occur yearly, increasing the taxable income of the investor.