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What is an Institutional Fund

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04 Aug 2023

Introduction 

Understanding the financial markets, the terminology, and other important components is a must for any investor. One such term is an institutional fund. Institutional funds wield power in the investment world, exuding sophistication and a knack for strategic decision-making. But what exactly are these mysterious entities? Read on to discover the essence of institutional funds and the secrets behind their financial power.

What is the Meaning of an Institutional Fund?

An institutional fund is a type of collective investment option that is available to a variety of institutional investors. The list includes high-net-worth individuals, governments, charities, companies, or entities such as hedge funds, endowments, mutual funds, pension funds, etc. 

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These funds frequently have long-term investment objectives. They may specialize in a single asset class or have a diverse portfolio, including stocks, bonds, real estate, commodities, and alternative investments.

What are the Types of Institutional Funds?

Listed below are the different types of institutional funds you can choose from:

Institutional Commingled Funds 

Much similar to a mutual fund, an institutional commingled fund is a type of pooled fund. However, it is not available to retail investors and is not publicly listed. These commingled funds comprise various asset accounts to lower costs. It is mainly used as a pension fund, insurance policy, or as a retirement plan. These funds are typically managed by a bank or trust company and offer the following benefits: 

  • Economies of scale
  • Allowing institutional investors to access a diversified portfolio
  • Lower costs
  • Potentially higher returns. 

Institutional Mutual Fund Shares 

Institutional mutual funds have a share class that is meant for institutional investors. These funds have a low expense ratio and a set fee structure. They typically require higher minimum investments. They may also have minimum holding periods or redemption restrictions. 

Separate Accounts 

A separate account is an RIA - registered investment advisor-managed portfolio. It is tailored to meet the specific needs and requirements of an institutional investor. In a separate account arrangement, an institutional investor hires an investment manager or asset management firm to manage their portfolio directly, separate from pooled funds like mutual funds or commingled funds. 

Conclusion 

Institutional funds are customized and curated to meet the requirements of specialized share classes. These investment vehicles cater to large financial institution's unique needs and objectives. By harnessing the benefits of institutional funds, investors can confidently navigate the complexities of the financial landscape.

 

Related Blogs: Understanding Income Funds: Basics and Features | Why are Mutual Funds and Compound Interest a Winning Combination | What is Counterparty Risk? Understand Here! | What is a Blend Fund

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