It is a type of fund investment in which individual investors primarily invest the capital. These retail funds contrast with the institutional funds that usually target massive dollar amounts from investment firms or professional investors, such as insurance companies or pensions.
Retail funds target the investing interests of individual investors. Exchange-traded funds(ETFs) and Mutual Funds are common retail funds intended for ordinary investors. These funds are traded on the open market and do not have share classes. Open-end mutual funds manage investments from both the institutional as well as retail investors through various share classes. In an open-end mutual fund, the majority of share classes are targeted at individual retail investors. Also, these open-end mutual funds do not trade on an exchange with trades managed by the mutual fund company.
There are no such specific investor requirements for the retail funds. Because of this, they differ from other fund offerings present in the market, which mandate specific investment requirements.
Types of Retail Funds
Retail mutual funds have a variety of investment styles. Each fund has a specific objective that determines the types of shares it will buy based on the regions, assets, size, and company type. Common styles are the large-cap, mid-cap, small-cap, bond, international, specialty, and balanced. ‘Caps’ here refers to the total value or the market capitalization of a company’s stock.
Large-cap companies usually have a market size of approximately $10 billion today. Microsoft, Apple, PetroChina, Exxon Mobil, and IBM are examples of significant cap retail funds. Small-cap are those firms that are usually worth less than $250 million. Global funds invest worldwide and might hold U.S. companies, whereas International funds invest outside the U.S. Bond funds are those that invest in government, corporate or other types of bonds. Balanced funds are hybrid funds, and they hold mixed investment styles in 60:40 ratio, large-cap, and bond, respectively.
Growth Vs. Value Funds
In most asset classes, there is a split into subcategories: value, growth, and blend. It reflects the type of company stocks chosen to be in the mutual fund, such as the Vanguard U.S. Growth Fund. This fund invests in large-cap growth stocks. The Artisan Mid-Cap Value Fund invests in mid-cap value stocks.
Growth stocks are growing faster than any other in their industry in either revenues or earnings. These growth stocks firms usually reinvest any cash and do not pay dividends. Value stocks are the undervalued firms whose stock price is usually near a 52-week low. They tend to pay high dividends usually.
Some of the retail funds are labeled by the approaches that are used to manage the holdings. It includes actively and passively managed funds. The mutual funds are invested in all the firms within the market index. With less effort and trading, index funds generally have the lowest fees. The actively managed mutual funds use detailed research to pick up the verified stocks and try to beat the market average. Returns of these mutual funds depend on the ability of the manager and also have higher overall fees. This newer type of actively managed category is called tactical asset allocation. These tactic funds do not limit their investments to an asset class or any particular subcategory. Their managers invest in whatever asset class they feel will produce the best returns and switch it again whenever they feel fit.
You might come across funds with the same name but different stock ticker symbols. It typically reflects different share classes on the same available funds. With the help of this fund, companies differentiate various versions of the same available funds instead of offering two funds that have identical holdings, thus creating various share classes for the same mutual fund with different requirements with different fee structures.
Investing in Retail Funds
There is a large pool of options for individual investors to choose from. These retail funds are open to all individual investors, and they do not have a certain amount of the transaction costs with the minimum amount of investment that has to be considered.
These individual investors can invest in retail funds through various channels. On the one hand, the mutual funds are traded with the fund company or through an intermediary, whereas closed-end funds and ETFs are traded in an open market with the help of an intermediary. The process of investing with the help of an intermediary requires due diligence. Investors also tend to incur sales charges when they are transacting with full-service brokers.