Sign In

Have you ever wanted to invest your money but didn't know where to start? Or perhaps you've tried to invest but found it difficult to diversify your portfolio without significant capital. Fear not because there's a solution.

This is where pooled funds come into the picture. Let us help you understand them better.

What are Pooled Funds?

Pooled funds are investment instruments that combine money from multiple investors to create a larger investment fund. A professional fund manager then manages the accumulated fund and offers investors access to a diversified portfolio of assets. Examples of pooled funds include mutual funds, exchange-traded funds (ETFs), and real estate investment trusts (REITs).

With pooled investments, you can benefit from economies of scale, which allows for greater diversification and lower transaction costs. Additionally, you can benefit from the experience, knowledge and resources of professional fund manager to make informed investment decisions on behalf of the fund.

How Do Pooled Funds Work?

To better understand pooled funds meaning and working, let us consider an example -

A fund house creates a mutual fund scheme that invests in large-cap stocks. Investors contribute to a common pool which is then managed by a fund manager. The fund manager continually monitors and adjusts the portfolio as needed to ensure it aligns with the scheme’s investment objectives and to take advantage of opportunities in the market. Each investor owns shares or units in the fund, representing a portion of the pooled assets.

As the value of the underlying assets in the scheme's portfolio may increase, so tends the fund’s value. As an investor, you can buy or sell units of the Mutual Fund scheme via SIP or lumpsum at any time, and the buy or sell price of the units is determined by the fund's net asset value (NAV).

This way, pooled funds provide individual investors access to a diversified portfolio of assets, professional management, and the ability to buy and sell units on demand.

Importance of Pooled Funds

You can gauge the importance of pooled funds because they allow individual investors access a wider range of investment opportunities that they might not be able due to factors like larger capital required or not having the minimum investment amount required for certain stocks, neither having the expertise. This can result in greater diversification and potentially higher returns, as the fund manager can spread the money across various assets and make informed investment decisions.

Advantages of Pooled Funds

Pooled funds have several advantages that make them an attractive investment option for individual investors:

1. Diversification

The underlying pooled investment meaning says that it allows you to achieve diversification without having to purchase and manage multiple assets individually. This can help reduce risk and potentially increase returns.

2. Professional fund management

Pooled funds are managed by professional fund managers with the experience and resources to make informed investment decisions. This can be especially beneficial for you if you do not have the time or knowledge to research and manage the investments.

3. Cost-Effective

As per the pooling of funds meaning, pooled investments result in lower transaction costs for individual investors. This is because the pooled fund can purchase assets in larger quantities, resulting in lower transaction fees and better pricing.

Disadvantages of Pooled Funds

While pooled funds have many advantages, there are also some potential disadvantages to consider, such as:

1. High fees

Several pooled funds may charge high fees, including management fees and other expenses, which can take a significant share of the investor’s returns. Hence, it's important to understand the fee structure and compare it to other investment options.

2. Lack of control

When investing in a pooled fund, investors give up control over the individual assets held by the fund. The fund manager makes the investment decisions, and investors have limited input.

3. Market risk

Pooled funds are subject to market risk, which means that the value of the fund's underlying assets can rise or fall based on market conditions. This risk is inherent in any investment, but you should know the potential for losses.

4. Lack of customisation

Pooled investments are designed to meet the investment objectives of a broad range of investors, so they may not be tailored to an individual's specific needs or preferences.

While pooled funds offer many advantages, it's important to consider the potential disadvantages and weigh them against your individual investment goals and preferences.

​​​​
Disclaimer:
This is an investor education and awareness initiative by Nippon India Mutual Fund.
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document. Language Disclaimer:
While utmost care has been taken in translating the article into respective regional language(s), in case of any confusion or difference of opinion, article available in English language should be deemed as final. The article provided herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional advice for the readers. The document has been prepared on the basis of publicly available data/ information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of loss of profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this article. "ABOVE ILLUSTRATIONS ARE ONLY FOR UNDERSTANDING, IT IS NOT DIRECTLY OR INDIRECTLY RELATED TO THE PERFORMANCE OF ANY SCHEME OF NIMF. THE VIEWS EXPRESSED HEREIN CONSTITUTE ONLY THE OPINIONS AND DO NOT CONSTITUTE ANY GUIDELINES OR RECOMMENDATION ON ANY COURSE OF ACTION TO BE FOLLOWED BY THE READER. THIS INFORMATION IS MEANT FOR GENERAL READING PURPOSES ONLY AND IS NOT MEANT TO SERVE AS A PROFESSIONAL GUIDE FOR THE READERS."

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
  • CONNECT WITH US
Top