A mirror fund is an investment opportunity where someone can deposit into an account that is essentially a copy of an existing mutual fund.
A mirror fund is an investment opportunity where someone can deposit into an account that is essentially a copy of an existing mutual fund. Rather than investing directly into a major fund, someone pays into another account which is used by an established company to buy the actual mutual fund. The main benefit of this type of investment is that there are no entry or exit charges to be paid. A mirror fund may not be as profitable as it initially appears, however, as the return on it is likely to be substantially less than on the mutual fund it mirrors.
The basic idea behind a mirror fund is that people more easily invest in an established mutual fund through a “copy” or “reflection” of it. Instead of investing directly in a mutual fund, which is a financial pool made up of several investors, people can pay into a mirror fund established by a company that effectively acts as an arbiter between the investors and the actual mutual fund organization. Investments made in the “copy” are used to pay the real fund by the intermediary company rather than by individual investors.
One of the main advantages of using a mirror fund is that individual investors can avoid any entry or exit fees. Mutual funds may be willing to waive these fees for larger investment firms that represent multiple individuals. It might also be a little easier for investors to switch between different funds this way. Because a mirror fund does not have the limitations or restrictions of a real mutual fund, an investor can more easily move money between accounts.
There has been some criticism of the way mirror funds are typically set up. The company that creates this account receives the actual return on the mutual fund based on the investments in it. This return is passed on to investors in the mirror fund, although the intermediary company receives a percentage of the profit. Even if this amount seems small, it can have a tremendous impact on the value made by investors over the long term.
One of the advantages of a mirror fund is the lack of entry or exit fees. The return value held by the investing company can often exceed these expenses, however, which ultimately means that investors can lose money on that company. It may be more profitable for an investor to pay a mutual fund directly, even if the initial costs are higher.