What Are Proprietary Funds?


Quick Answer

Proprietary funds are mutual funds in which the banks or firms managing the funds also sell them and act as investment advisors to buyers, notes Investopedia. This differentiates them from third-party funds, in which investments are usually managed by people outside of the companies offering the funds.

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Full Answer

Most companies that have large sales forces, such as banks, credit unions, brokerage firms and insurance companies sell proprietary mutual funds, states Investopedia. This allows them to collect the fees associated with managing and selling the funds, which helps balance out the risks associated with their other lines of business. Investors who have in-house advisors that recommend proprietary mutual funds should ask if they also sell third-party funds, and ask if they are required to push the in-house funds first.

People who invest only in proprietary mutual funds may end up with a lack of diversification in their portfolios, and risk buying funds when there are better third-party options available, according to Investopedia. Unlike third-party mutual funds, most proprietary funds are not transferable if investors decide to move their accounts. Proprietary funds can be beneficial to investors who want the personalized touch they get from working with mutual fund managers they are familiar with; however, researching the potential disadvantages of proprietary mutual funds before investing is critical.

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