Pooled Funds

Pooled funds are investment funds that combine money from multiple investors to create a larger investment fund. The money is invested in a diversified portfolio of assets, such as stocks, bonds, and real estate. Some examples of pooled funds include Mutual funds, Exchange-traded funds (ETFs), Real estate investment trusts (REITs), Hedge funds, and Pension funds.
EXPLORE FUNDS
What are Pooled Funds
EXPLORE FUNDS
3 min
19-November-2024

Pooled funds represent a strategic approach to investing where capital from numerous investors is aggregated into a unified portfolio. This collective investment strategy encompasses a variety of professionally managed funds, such as mutual funds, hedge funds, exchange-traded funds (ETFs), pension funds, and unit investment trusts. The core advantage of pooled funds lies in their ability to offer economies of scale, leading to reduced trading costs and enhanced diversification for the investors involved.

By combining resources, entities like investment clubs, partnerships, and trusts are able to function as a singular account holder. This collective buying power enables the group to acquire more shares than individual investors could afford on their own, often benefiting from discounted pricing. Among the various types of pooled funds, mutual fund schemes stand out due to their broad diversification and professional management. These funds distribute investments across a wide array of assets, mitigating the risk associated with the underperformance of a single security or asset class. With portfolios that often contain hundreds or thousands of securities, mutual funds provide a cushion against market volatility, making them a preferred choice for investors seeking balanced exposure.

Example of Pooled Funds

Unit investment trusts (UITs) offer another avenue for pooled investments, catering to smaller investors looking to gain entry into markets or securities that might otherwise be out of reach due to high market values. For example, a collective investment in high-value stocks like Page Industries or MRF becomes feasible through a UIT. Unlike mutual funds, UITs maintain a fixed portfolio over a designated term, providing a stable investment environment for participants.

Pooled funds, through their varied forms and structures, open up opportunities for investors to access diversified portfolios managed by professionals, reducing individual risks and maximising potential returns in a cost-effective manner.

Mechanics of pooled funds

Pooled funds operate by consolidating contributions from multiple sources into a collective financial reservoir. This fund is then utilised for a variety of purposes, including grant making, contractual obligations, payroll for employees, and covering other operational and program-specific costs. The financial stewardship, regulatory compliance, lobbying limitations, grant-making due diligence, and human resource management of these funds are typically overseen by an intermediary organisation.

The governance structure of pooled funds usually includes a board consisting of donors, who may be joined by non-donors such as experts on specific issues. This governance body is responsible for advising the intermediary's board on the strategic allocation and utilisation of the funds. Through this collaborative and oversight framework, pooled funds ensure that resources are allocated efficiently and effectively towards their intended purposes.

Advantages and Disadvantages of Pooled Funds

Below mentioned are the advantages and disadvantages of Pooled Funds

Advantages

Disadvantages

Diversification reduces risk.

Fees and commissions are involved.

Economies of scale enhance buying power.

Fund activities may lead to tax implications.

Access to professional money management.

Investors cannot control their investments.

Cost-effective investment approach.

The benefits of diversification can be capped.

 

Conclusion

Opting for passive investments through pooled funds presents an appealing pathway for individuals with limited capital, broadening access to markets such as real estate that might otherwise be out of reach. The diversity of pooled investment options available today, including the 1000+ mutual funds listed on the Bajaj Finserv Mutual Fund Platform, makes entering the investment world more feasible and versatile than ever. While every investment inherently carries some level of risk, the decision on how to choose mutual funds or where to invest should align with your financial goals and risk tolerance. You can also compare mutual funds to choose the best investment as per your needs. The Bajaj Finserv Platform stands ready to guide investors through this journey, offering a wide array of investment opportunities designed to meet various investor needs and preferences.

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Frequently asked questions

What is the meaning of pooled funds?
A pooled fund is a type of investment fund where multiple investors combine their money to invest in a diversified portfolio of securities. This pooling of resources allows individual investors to benefit from economies of scale, diversification, and professional management. Pooled funds can invest in a variety of assets, including stocks, bonds, and real estate, depending on the fund's objective.
What is the difference between a mutual fund and a pooled fund?
The term "pooled fund" is often used broadly to describe any investment fund where investors' money is pooled together for investment purposes. The main difference is that while all mutual funds are pooled funds, not all pooled funds are mutual funds. Pooled funds can include other types of collective investments like hedge funds, exchange-traded funds (ETFs), and private equity funds, each with their own set of rules and structures.
Are pooled funds risky?
Like all investments, pooled funds carry some level of risk, which varies depending on the specific type of fund, its investment strategy, the assets it holds, and market conditions. However, pooled funds offer diversification, which can help spread risk across a variety of investments rather than concentrating it in a single stock or bond. While diversification can help reduce risk, it does not eliminate it, and investors can still lose money. It's important for investors to understand the specific risks associated with a particular pooled fund before investing.
What is the difference between pooled and segregated funds?

Pooled and segregated funds both involve pooling investments from various investors, but they are managed differently and offer different benefits and protections. Pooled funds involve investors' money being combined into a single fund, with each investor owning shares of the fund itself. This approach offers diversification and professional management but does not guarantee individual investment protection.

Segregated funds, on the other hand, are a type of insurance investment product where the investments of each individual are kept separate (or segregated) from the assets of other investors. Segregated funds often come with insurance benefits, such as a guarantee of principal upon maturity or death, which can protect the investor's principal investment to a certain extent. However, these additional protections can come at a cost, such as higher management fees compared to traditional pooled funds. Segregated funds are typically offered by insurance companies and may provide estate planning benefits as well.

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

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