Our Recommended Broker

Get $50 in free trades.
Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max FAQs
Home
Disclaimer
Learning Topics
Contact Us
FAQ Archive

What is a pooled fund?

These investments are similar to mutual funds. A professional manager takes money from many investors to create a pool which in stocks or bonds. The investors hold units in the pool.

But unlike a mutual fund, pooled funds are sold without a prospectus, and you usually must contribute at least $150,000. With a mutual fund, minimum contributions are generally in the $500 or $1,000 range. Pooled funds, because of the large minimum investments required, generally have lower management fees than mutual funds. The management expense ratio (MER) for Canadian equity funds averages more than 2%; typical MERs for pooled equity funds are about 1%. Since proper diversification requires you to invest in at least the three main asset classes -- cash, fixed-income and equities -- you would probably need at least $500,000 to create a properly diversified portfolio using only pooled funds. The unit price of the pooled fund will fluctuate with the performance of the underlying investments held by the fund. If the pooled fund invests in the stock market and stock prices rise, the unit price of the pooled fund will likely increase. As with most investments, there are no guarantees on pooled funds. You need to consider the level of risk tied to each fund. The risk will depend on the investments within the pooled fund. The objectives of each pooled fund will vary. For example, a money market fund's objective is to provide a high level of both income and liquidity. To meet this objective, the fund typically invests in short-term government treasury bills and other short-term vehicles. Treasury bills are low-risk investments, so money market pooled funds are also low-risk. Equity funds, on the other hand, strive for long-term growth. To meet this objective, they invest in stocks. Since stocks generally have a higher level of risk, equity funds also carry a higher level of risk. Pooled funds are offered by trust companies, investment management firms and insurance companies. Consider seeking professional investment advice. Investment products and strategies suitable for one person may not be appropriate for you.