Not all funds are available to all investors. This is why the investment market is dominated by two categories of funds – retail and wholesale fund.
As per Statista, the total funds under management belonging to Australian sources amounted to a whopping $4.11 trillion. Both retail and wholesale investors operate in this space with a view on personal income.
This guide will help you understand the difference between each fund category and its respective investors.
To put it simply, retail funds are those funds wherein individual investors invest in the fund’s capital. These funds are available to the general public – one and all. This is why Exchange-traded funds and mutual funds come under retail funds.
On the other hand, a wholesale fund is not offered to the general masses. Their fund units are mainly offered for purchase or subscription to more advanced or sophisticated investors.
A Retail vs. Wholesale Investor
As the name itself suggests, retail investors are non-professional investors. So, they usually invest in smaller units or smaller amounts. This investment is made using their account into bonds, stocks, or property funds with the help of financial advisories.
Essentially, anybody who is an adult can be a retail investor.
On the other hand, a wholesale investor has the financial resources to access more significant opportunities by investing in better-quality assets. In a nutshell, these investors usually have net assets that are either $2.5 million or more and can invest at least five-figure amounts into a particular fund.
Key Areas of Differences between Retail and Wholesale Fund
One of the main differences between wholesale and retail products is the degree of compliance each involves.
With a view on consumer protection, retail products usually come with higher disclosure requirements. Being offered to experienced investors, Wholesale products come with fewer obligations or regulatory requirements as laid down by the Australian Securities & Investments Commission (ASIC).
This is done because wholesale investors are more likely to assess fund interests without requiring a regulated disclosure to protect them. Such is not the case with retail investors.
Moreover, retail funds will generally need a lower minimum investment amount. But since wholesale funds are available to investors with high net worth, they generally involve a higher minimum investment amount.
Finally, wholesale funds open their investors to a broader, more complex range of investment products. So, the risk/return ratio is also higher. But, the risk involved with retail fund investment is usually lower and more diversified.
Sometimes, it’s clear to investors whether they’d fall under the category of a retail investor or a wholesale investor. However, other times, you may feel unsure.
If such is the case, get in touch with an experienced and reliable accountant or financial advisor. Also, consider Section 9 of the Corporations Act 2001, which states that an investor can invest in a wholesale fund if he has a financial services license or controls assets worth $10 million.
This includes money held with any trust or associate. We hope this guide helped you understand the difference between a wholesale and retail fund for a better investment experience. Start your investment journey today after studying the market and understanding the different kinds of funds.