A Guide for Individual Investors

What Is a Retail Fund?

A retail fund is an investment option designed for individual investors who want to pool their money with others to invest in a mix of stocks, bonds, or other assets. Examples include mutual funds and exchange-traded funds (ETFs), which make it easy for everyday investors to diversify their portfolios. Keep reading to learn the benefits and types of retail funds, along with how you can buy these funds to help grow your savings.

Retail Fund Fundamentals

Retail funds target the investing interests of individual investors. Closed-end mutual funds and exchange-traded funds are the two most common types of retail funds. These funds do not have share classes and are traded on the open market. Open-end mutual funds collectively manage investments from both retail and institutional investors through various share classes. The majority of share classes in an open-end mutual fund are targeted for individual retail investors. Open-end mutual funds do not trade on exchanges with trades managed by the mutual fund company.

Retail funds do not have specific investor requirements. In that way they differ from other fund offerings in the market that mandate certain investor requirements. Hedge funds and private market investments for example, may require that an investor be accredited with a specified net worth.

Institutional shares, on the other hand, are a class of mutual fund shares that are only available to institutional investors. These typically have the lowest expense ratios among all of a mutual fund’s share classes, but require a minimum investment that ranges from hundreds of thousands to millions of dollars and may require other specifications for investment. 

Objectives of Retail Funds

Retail assets account for a significant portion of the market’s total investments. Investment companies offer a wide range of retail fund objectives across all types of asset classes for retail investors.

To help investors better understand and analyze retail fund investments, Morningstar developed style boxes for both equity and fixed income funds. Style box analysis can help investors analyze and invest in retail funds with varying levels of risk and potential return. Retail investors can use style box analysis to develop a diversified portfolio of retail funds across multiple investing categories through a brokerage account.

Investing in Retail Funds

Individual investors have a wide range of retail funds to choose from. While retail funds are open to all individual investors, they do have certain transaction costs and minimum investments that must be considered.

Individual investors can invest in retail funds through various channels. Mutual funds are traded with the fund company or through an intermediary. Closed-end funds and ETFs can be traded in the open market through an intermediary. Investing through intermediaries requires careful due diligence. Investors will incur sales charges when transacting with full service brokers. Sales charges are determined by the fund company and outlined in a fund’s prospectus. They can range up to 6% of an investor’s investment per transaction.

Discount brokers are often a more cost efficient way to trade mutual funds. Discount brokers often charge a transaction fee with each block trade. Fund companies work with all types of brokers to determine minimum investment levels required by an investor for investment. Minimum investments for retail funds can range from $100 to $10,000.