What is a Family of Funds?

Geri Terzo

Investing in mutual funds as opposed to individual stocks and bonds is a way for investors to gain more diversification at often lower costs than it would require otherwise. Many mutual fund firms offer a family of funds, which are comprised of different individual mutual funds with varying objectives and investment strategies. Investors can often move capital or money from one fund to another for nominal fees or no fees and can receive one combined statement reflecting investment and performance activity each month or quarter.

Many mutual fund firms offer a family of funds, which are comprised of different individual mutual funds with varying objectives and investment strategies.
Many mutual fund firms offer a family of funds, which are comprised of different individual mutual funds with varying objectives and investment strategies.

It's typically the largest mutual fund firms that provide investors with the option of a family of funds into which they can to invest. Each of these funds will be comprised of different securities, such as stocks or bonds, and will utilize different investment strategies that reflect varying levels of risk and reward. An investor might decide after placing capital with one fund that he or she can stand to take a little bit more risk, and a mutual fund company that offers a family of funds will afford the investor the ability to redirect some money to a different portfolio that invests more aggressively.

In some cases, a mutual fund might be designed to include securities from a specific sector. For instance, there might be a technology-heavy portfolio that grants investors exposure to some of the most promising stocks in that industry. If all of a sudden there appears to be growth occurring in the energy sector, however, an investor might decide to move some of the investment over to another energy-specific portfolio in the family of funds.

The benefits of a mutual fund company offering that includes a family of funds is that if an investors decides to change his or her investment profile, he or she does not have to change mutual fund firms in order to accomplish that. This is why the fees involved in switching funds can be small, so that investors are not penalized for redirecting assets as long as it is within a family of funds. The mutual fund company gains because it continues to manage the same amount of assets for the investor, and the investor does not have to open up a new account elsewhere.

Mutual fund companies in some places, such as the United States and the United Kingdom, are required to provide a prospectus, which describes the investment strategy of any given portfolio in addition to an outline of fees and commissions. Investors should be aware of the amount of liquidity or access to cash that each individual mutual fund provides. This will lessen the chance for misunderstanding when an investor seeks to move assets from one fund to another if the funds can not be released for a period of time.

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