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Commingling: Definition, Benefits, and Real-life Examples

Last updated 03/15/2024 by

Silas Bamigbola

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Commingling (commingled) in the world of finance involves pooling money from different investors into a single fund. This practice has several benefits, including reduced fees and access to a broader range of investments. However, it can also refer to the illegal act of misusing client money without consent. In this comprehensive guide, we explore the concept of commingling, its benefits, and potential risks.

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Understanding commingling (commingled)

Commingling, in the context of finance, refers to the practice of combining assets or funds contributed by multiple investors into a single fund or investment vehicle. This concept is integral to various investment funds and can also involve pooling different types of contributions for specific purposes. Let’s delve deeper into some examples of investment commingling.

1. Combining funds in inheritance

If you deposit a paycheck into an inheritance fund, the paycheck becomes part of the inheritance fund, and it is no longer considered separate property. This illustrates how commingling can occur in personal financial matters.

2. Investment management

In the world of investment management, commingling takes the form of pooling individual customer contributions into a single fund, with each contributing customer owning a portion of the fund. This practice is commonly used in mutual funds and institutional investment funds. It enables portfolio managers to effectively manage investment contributions according to a specific strategy.

Additional notes on commingling

Commingling, as a concept in finance, has evolved over the years and continues to play a crucial role in various investment strategies. Here are some additional insights into this practice:

The historical context

Commingling has a rich historical context, dating back to the inception of mutual funds in the 1920s. The idea of pooling resources from multiple investors allowed even the smallest investors to access a diversified portfolio of securities. This democratization of investing was a significant development in the financial world.

Scale and efficiency

One of the core advantages of commingling is the efficiency it brings to investment management. Fund managers can pool large amounts of money, allowing for cost-effective execution of trades and diversification of investments. This efficiency can lead to lower fees for investors, making it an attractive option for those seeking professional management without hefty expenses.

The role of technology

In the digital age, technology has further streamlined the commingling process. Online platforms and robo-advisors have made it easier for individual investors to participate in commingled funds. These platforms provide access to a wide range of investment options and enable investors to monitor their investments in real-time, enhancing transparency and control.

Regulations and compliance

Commingling is subject to strict regulatory oversight to ensure that fund managers adhere to legal and ethical standards. Compliance with regulations is critical to maintain the trust of investors and prevent potential legal issues related to mismanagement or illegal commingling. Both fund managers and investors must stay informed about the legal framework governing commingling in their respective jurisdictions.

Global reach

Commingling is not limited to a specific geographical region. It has a global reach, with commingled funds available in various markets worldwide. Whether you’re in North America, Europe, Asia, or other regions, you can explore commingled investment options that suit your financial goals and risk tolerance.

Evolving investment vehicles

While mutual funds and real estate investment trusts (REITs) are well-known examples of commingled funds, new investment vehicles are continually emerging. Alternative investments, such as peer-to-peer lending and cryptocurrency funds, are introducing innovative commingling approaches. These evolving options provide investors with diverse opportunities to participate in the commingling phenomenon.

The role of financial advisors

Financial advisors play a pivotal role in guiding investors through the complexities of commingling. Their expertise helps investors make informed decisions about joining commingled funds or structuring their investment portfolios. Financial advisors can provide valuable insights into the types of commingled funds that align with an investor’s financial objectives.

Pros and cons of commingling

Commingling funds offers numerous advantages to both investors and fund managers. Here are some key benefits:
Weigh the risks and benefits
Here is a list of the benefits and the drawbacks to consider.
  • Lower fees for investors
  • Access to a wider range of investments
  • Efficient management of pooled funds
  • Lower trading costs for fund managers
  • Potential conflicts of interest
  • Risk of illegal commingling
  • Loss of individual control over investments
Commingling of funds, whether in the form of mutual funds, collective investment trusts, or other commingled vehicles, has been a fundamental strategy in investment management. By combining investors’ contributions, fund managers can efficiently manage portfolios, reduce trading costs, and provide investors with access to a diverse range of assets. This practice does require fund managers to maintain certain positions in cash to account for transactions involving commingled shareholders.
Various types of commingled funds exist, including mutual funds, exchange-traded funds, commingled trust funds, collective investment trusts, and real estate investment trusts (REITs). These funds cater to diverse investment goals and provide investors with opportunities to access a wide array of assets.
Standard record-keeping practices enable operational teams to monitor and regularly report fund positions to investors. For mutual fund investors, daily price quotes allow them to stay informed about their exact position within a fund, presented as a percentage of the fund’s total managed assets.
One notable advantage of commingling is the scale it offers. Large pools of money can provide access to investments that might require substantial buy-ins. Moreover, since the core tasks of an investment manager remain largely the same regardless of fund size, individual investors can enjoy lower fees compared to hiring their own investment managers for smaller sums. However, it’s worth noting that in larger funds, the potential benefits of smaller, high-reward opportunities may be diluted, as gains must be distributed among a larger group of investors.

Real estate commingling/real estate investment trusts (REITs)

Real estate investment trusts (REITs) represent a prime example of commingled funds. These trusts involve individuals pooling their resources to invest in substantial real estate projects. REITs often take the form of operating companies that own and manage income-producing real estate assets, such as apartments, shopping centers, and office buildings. Investors can purchase shares of REITs on public exchanges, providing them with a convenient way to invest in real estate without directly owning or managing properties.

Illegal commingling

In some cases, commingling of funds can have legal consequences. This typically occurs when an investment manager combines client money with their own or their firm’s funds in violation of a contract. Investment management agreements outline the specifics and standards that an investment manager must adhere to. Fiduciary responsibilities oblige investment managers to manage assets according to agreed-upon terms, and assets designated as separate must not be commingled without the client’s consent.
Various situations can necessitate careful management of contributions, including legal cases, corporate client accounts, and real estate transactions. Legal and ethical considerations play a vital role in ensuring that commingling adheres to established rules and guidelines.


Commingling, whether in the form of mutual funds, collective investment trusts, exchange-traded funds, or other investment vehicles, plays a crucial role in investment management. By pooling resources from multiple investors, it enables efficient fund management, cost reduction, and access to a diverse range of investments. However, understanding the legal and ethical aspects of commingling is essential to prevent potential issues associated with illegal commingling. Whether you’re an investor considering commingled funds or an investment manager, adhering to established guidelines is key to success in the world of finance.

Frequently asked questions

What are the potential risks associated with commingling in investment management?

Commingling in investment management can introduce several risks, such as the potential for illegal commingling, which may lead to legal consequences. There’s also the risk of conflicts of interest, where fund managers may prioritize their interests over those of the investors. Additionally, commingling can result in a loss of individual control over investments, as decisions are made collectively.

How do real estate investment trusts (REITs) utilize commingling?

REITs use commingling to pool resources from various investors to invest in large real estate projects. They often take the form of operating companies that own and manage income-producing real estate assets, such as apartments and shopping centers. Investors can purchase shares of REITs on public exchanges, allowing them to collectively participate in real estate ventures and share the risks and rewards.

What role do collective investment trusts (CITs) play in commingling?

CITs are designed for retirement and pension plans, enabling multiple employers to pool their resources for investment purposes. They are typically managed by trust companies or banks. CIT participants benefit from professional fund management and a diversified portfolio. The commingling of assets in CITs allows for cost savings, making them an attractive option for those looking for professionally managed investment vehicles with lower expenses.

How can individual investors benefit from commingling in exchange-traded funds (ETFs)?

Individual investors can benefit from commingling in ETFs by gaining access to a diverse range of asset classes, from stocks and bonds to commodities and real estate, all within a single fund. ETFs provide cost efficiency and the flexibility to trade them like stocks, making them an appealing choice for diversifying investment portfolios.

What are the legal and ethical considerations related to commingling?

Legal and ethical considerations are essential in commingling to ensure compliance with established rules and guidelines. Investment managers have a fiduciary responsibility to manage assets according to agreed-upon terms, and assets designated as separate must not be commingled without the client’s consent. Understanding the legal implications and adhering to ethical standards is crucial to avoid potential legal issues related to commingling.

Key takeaways

  • Commingling involves pooling funds from multiple investors into a single investment vehicle or fund.
  • Benefits of commingling include lower fees, efficient fund management, and access to a wider range of investments.
  • Commingling can also refer to the illegal act of combining client money without consent, potentially leading to legal consequences.
  • Real estate investment trusts (REITs) are a common example of commingled funds in real estate investing.

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