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Institutional Fund

Moneyzine Editor
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Moneyzine Editor
1 mins
January 22nd, 2024
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Institutional Fund

Definition

The term institutional fund refers to a mutual fund that caters to the needs of high net worth individuals, pension funds, and endowments. The characteristics of institutional funds include both lower operating costs and high minimum investments.

Explanation

Mutual funds looking to attract investments from pension funds, endowments, and high net worth individuals oftentimes operate as institutional funds. These are mutual funds that distinguish themselves in the following manner:

  • Low Risk: by holding an extremely diverse portfolio of securities, these funds can lower the overall risk of loss to the investor.

  • Low Turnover and Management Fees: since the number of securities in the portfolio is relatively large, turnover is relatively low. Consequently, the fees associated with operating these funds are also relatively low.

  • High Minimum Investments: because these funds are looking to attract investments of pension funds, endowments, and high net worth individuals, the minimum investment may be $1 million or more.

Note: Institutional funds can include mutual funds as well as hedge and private equity. However, if the fund is established as an institutional fund, the prospectus must indicate this feature.

Related Terms

  • Retail Investor (Individual Investor)
    The term retail investor refers to an individual that purchases or sells securities on behalf of their personal account. Unlike institutional investors, retail investors do not provide financial services to customers.
    Moneyzine Editor
    Moneyzine Editor
    September 21st, 2023
  • Retail Fund
    The term retail fund refers to a mutual fund that caters to the needs of individual investors and is sold through brokers. The characteristics of retail funds include low minimum investment thresholds and relatively high operating costs.
    Moneyzine Editor
    Moneyzine Editor
    September 21st, 2023
  • Institutional Investor
    Institutional Investor
    The term institutional investor refers to organizations that trade in securities in such high volumes that they qualify for lower commissions. Institutional investors provide financial services to customers and may be classified as non-bank financial institutions.
    Moneyzine Editor
    Moneyzine Editor
    January 22nd, 2024

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