by Shaun D. Cox, Senior Client Service Administrator
Mutual Funds have been the preeminent investment option within retirement plans for many years. With CITs (Collective Investment Trust) becoming more and more popular due to lower fees and flexibility, the retirement industry is gradually changing its approach to retirement investing.
What is a Mutual Fund?
A Mutual Fund is an investment vehicle which pools your money together with other investors to purchase stocks, bonds, and other securities, depending on the Mutual Fund’s particular investment strategy. Mutual Funds allow ordinary investors to buy in to sophisticated investment strategies while having very little to no involvement in the management of money.
What is a Collective Investment Trust?
Very similar to a Mutual Fund, a Collective Investment Trust is a tax-exempt, pooled investment vehicle, but is only available to institutional investors and within employer-sponsored retirement plans, for example, 401(k) plan participants. Because CITs do not deal with retail investors, they are generally lower cost than Mutual Funds and are exempt from certain regulatory requirements.
What are the differences between Mutual Funds & CITs?
As mentioned before, Mutual Funds and Collective Investment Trusts are very similar in structure. However, there are many important operational and transactional differences to consider. Mutual Funds are heavily regulated by the SEC under the Investment Company Act of 1940 while CITs are overseen by bank regulators and are subject to ERISA. CITs have different fee structures based on services and assets mapped. Mutual Funds have set asset based fees that are set through their share class structure. Also, when a participant is considering rolling their money over into an IRA, they usually have the option to keep their current Mutual Funds. CITs cannot be rolled over into individual IRA’s. Mutual Funds may also be subject to redemption fees whereas CITs are generally void of redemption fees.
As we have seen, there are many things to consider when determining whether Mutual Funds or CITs are appropriate for your plan. Oswald Financial, Inc. has the necessary tools and experience in evaluating the many different investment options to determine what is suitable for your plan.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
Investing in mutual funds and CITs involves risk, including possible loss of principal.
Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC. Other advisory services offered through Oswald Financial, a separate entity from LPL Financial.
Some information sourced from https://www.fidelity.com/learning-center/investment-products/mutual-funds/what-are-mutual-funds