What is a Crossover Fund?

Ken Black
Ken Black
Businessman with a briefcase
Businessman with a briefcase

A crossover fund is a mutual fund that invests both in public stocks and private equity. Private equity is an investment in which the holder of the equity has an ownership stake in the company. Private equities are not publicly traded on the open stock market.

A crossover fund offers one distinct advantage to investors holding mutual funds. It is a high yield mechanism. While most mutual funds are designed to build a steady return over time, a crossover fund can build a much quicker return on investment.

However, as with any type of investing, a crossover fund has tradeoffs, the major one being there is higher risk involved. While a crossover fund can provide a greater return on investment, is can also lose money easier than other types of mutual funds.

Due to the high risk, this type of fund is not recommended for some investors, especially those nearing retirement age. This may be a good fund to have in the first few years of an investor's working career, as it offers a chance to build a fairly significant money base before moving into more secure investments. However, those leaving their money in a crossover fund too long could find they are making a big mistake.

For those who are interested in obtaining a crossover fund, the best idea is to talk about the situation with a financial planner. The financial planner is a professional who can explain the risks and rewards of the strategy and suggest ways to mitigate that risk. They should have experience with many types of crossover funds and be able to identify one they think would work for you.

It is important to note that just because a crossover fund has a poor year, it may not be time to discard it. Crossover funds, like other types of investments, have their ups and downs. Although they may offer the chance of a greater return on investment, they are also considered to be long-term investments. Therefore, patience is in order.

However, for a crossover fund that is consistently underperforming, there will come a time when re-evaluation is necessary. Talking to a financial planner, and perhaps even getting a second opinion, is advisable if a fund shows poor growth over time.

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