A common trust fund is a pooled investment fund controlled by a single trustee, usually a bank or trust company, that invests accounts as it sees fit. It offers similar diversification and professional experience to mutual funds, but with lower management costs and regulatory restrictions. It is a popular retirement account feature, overseen by state and bank regulators, but not available to average investors in the stock market.
A common trust fund is a fund made up of the pooled investments of multiple trusts controlled by a single trustee. The administrator in question is usually a bank or trust company, which takes all accounts and invests them as it sees fit. In this way, a common trust fund works much like a mutual fund. It offers similar portfolio diversification and professional experience to beneficiaries, while avoiding some of the management costs and regulatory restrictions associated with mutual funds.
Most investors seek to diversify their portfolios as much as possible so that they can take advantage of a variety of market opportunities. Diversification is also a great way to avoid substantial losses, as the bad luck of one or a few investment opportunities can be offset by the portfolio balance. Mutual funds, which take money from multiple investors and spread it across the entire market, are a common way to achieve this diversification. A common trust fund is another way to achieve this diversification and as such is a popular retirement account feature.
Typically, a trust is a group of assets gifted by someone known as the grantor that are intended for distribution to that person’s beneficiaries. The trust administrator is someone the grantor trusts to follow the trust’s instructions and distribute the assets to the grantor’s beneficiaries. In a common trust fund, the bank or trust company acts as trustee for multiple funds, with investors as participants. The responsibility of investing the fund and seeing that the capital grows, capital that is then shared by those who invested in the fund, rests with the manager.
It is important to note that a common trust fund is not available to average investors in the stock market. Instead, it’s usually a feature of specific retirement accounts offered by banks or trust companies. The administrator has full financial control over these accounts, which means that the bank or trust company has the authority to make decisions on behalf of the fund participants.
In this way, a common trust fund manager acts much like a mutual fund manager who oversees the investments within the fund. The difference is that the management fees commonly assessed by mutual fund companies are significantly reduced, which means a higher rate of return for investors in the mutual fund. These funds are overseen by state and bank regulators, but are not technically considered collateral, so they are not on the open market.
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