Fund supermarket
| Fund supermarket |
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| See also |
Fund supermarket is type of investment companies or brokerage houses that offer to investors a wide range of funds through a single platform. This solution is beneficial for investors because they get access to a wide range of funds with the best conditions in one place, at the same time they also get an objective view of the investments possible for them and a list of already existing investment funds[1].
Fund supermarkets, therefore, give investors the opportunity to buy funds from many investment companies. High net value investors often cooperate with such platforms through financial advisor or personal broker[2].
Fund Supermarkets is a great alternative to investing in only one family of funds. They provide a large variety and a wide analysis of many fund offers, along with their categories and families. This method has gained many investors who prefer this platform model, thanks to the wider range of possibilities it offers. They no longer need to invest in only one family of funds, which often specializes only in several investment categories[3].
Fund supermarkets can be compared to ordinary food supermarkets, they allow customers to buy various goods from different producers in one specific place. What distinguishes these two supermarkets is that in Fund Supermarkets, clients are investors and producers are investment fund families, instead of a physical store there is a specific brokerage company. Thanks to this, investors receive a summary of all their purchases and shares on the account statement[4].
Investors usually manage their accounts online, sometimes they can do it through a telephone service.
Many platforms offer not only a wide range of open funds. You can also invest in investment funds, stocks, bonds, structured products or stock exchange funds[5].
The main benefits offered by fund supermarkets are the convenience and a relatively low cost. However, caution is required because depending on the platform, investment costs can vary significantly[6].
Cost
Capital supermarket fund companies can offer their investors various types of accounts and programs specially prepared for them. Investing on such platforms is associated with the obligation to pay a commission on the sale of the fund, previously determined by the investment fund company. Usually, the amount of such commission fluctuates within 1-5% and depends on the fund's sales structure. Many accounts on the supermarket fund platform offer financial consulting, research, portfolio planning tools, and valuation at the moment. Thanks to this service, investors can safely and effectively build their own investment portfolio[7].
For many investors the cost is the most important issue when choosing a supermarket. Often, outside the commission, supermarkets do not charge an initial fee, or significantly lower it. Unfortunately, they also have to pay for the opportunity to use the services of a brokerage company[8].
Types of fees
There are two types of fees[9]:
- Annual payments are collected as a lump sum, for example, 50 $ per year, or as a percentage of the value of all funds held. There are also tiered payment schemes, where the percentage of the fee decreases with the increase in the number of funds on the account.
- Transaction fees are usually uniform and collected at each fund purchase or sale transaction.
Various fund supermarkets have different methods, some allow you to trade for free, but with the addition of annual fees, this option is not necessarily cheaper. Sometimes there are fees for giving up the platform and transferring your funds somewhere else. Before making a decision about choosing a brokerage house, calculate the costs and fees for having an account[10].
Disadvantages of fund supermarkets
This type of platform is on the lead in terms of convenience and the number of advantages it offers. However, it is not without flaws. You must remember about the possibility of hidden charges. Lack of support for people who are not the best market-oriented and the number of available funds on offer can be overwhelming for them. The possibility of investing in several thousand funds may prove difficult even for experienced investors.
Footnotes
References
- Baker K., Filbeck G., Kiymaz H., (2016), Mutual Funds and Exchange-traded Funds: Building Blocks to Wealth, Oxford University Press, USA.
- Charles J., Jensen G., (2016), Investments, Binder Ready Version: Analysis and Management, John Wiley & Sons, USA.
- Epstein L., (2007), The Pocket Idiot's Guide to Investing in Mutual Funds, Alpha, USA.
- Mobius M., (2007), Mutual Funds: An Introduction to the Core Concepts, John Wiley & Sons, Singapore.
- Pozen R., Hanacher T., (2015), The Fund Industry: How Your Money is Managed, John Wiley & Sons, USA.
Author: Dominika Pszonak
