Incubated Fund

DEFINITION of 'Incubated Fund'

A fund that is offered privately when it is first created. Investors of this type of fund are usually employees associated with the fund and their family members. Incubation allows fund managers to keep a fund's size small while testing different investment styles before the fund is available to the public and subject to rules and regulations.

These types of funds are never officially called "incubated," but are instead called "limited distribution" funds.

BREAKING DOWN 'Incubated Fund'

There are two paths that can be taken by an incubated fund. If the fund is able to achieve excessive returns it is "born" and made available to the public. However, if returns are not adequate, the fund is liquidated and "buried."

The use of incubated funds has come under criticism in recent years. This is because incubated funds are not managed under normal conditions and, therefore, the returns achieved can be greater than normal. When the fund is advertised to the public, it may not be able to replicate the incubated returns it advertises. To avoid problems, investors must be able to identify whether a fund was first an incubated fund. However, this is easier said than done, as fund managers usually attempt to hide a fund's incubator origins.

RELATED TERMS
  1. Family Of Funds

    A group of mutual funds offered by one investment or fund company. ...
  2. Institutional Fund

    A fund that targets high value investors with low management ...
  3. Foreign Fund

    A mutual fund, closed-end fund or exchange-traded fund that invests ...
  4. Equity Fund

    A mutual fund that invests principally in stocks. It can be actively ...
  5. Investment Fund

    A supply of capital belonging to numerous investors that is used ...
  6. Fund Manager

    The person(s) resposible for implementing a fund's investing ...
Related Articles
  1. Entrepreneurship

    Grow Your Business With Business Incubators

    This article looks at business incubators and what they can do for you.
  2. Mutual Funds & ETFs

    Mutual Funds: Does Size Really Matter?

    The growth of mutual funds isn't always cause for celebration. Read on to find out why.
  3. Mutual Funds & ETFs

    Mutual Funds: Different Types Of Funds

    No matter what type of investor you are, there is bound to be a mutual fund that fits your style. According to the last count there are more than 10,000 mutual funds in North America! That means ...
  4. Investing

    The Top Businesses Nurtured By Y Combinator

    We look at the top startups that were incubated at Y Combinator, one of the world's most popular business incubator firms.
  5. Mutual Funds & ETFs

    Closing Mutual Funds: Investment Protection Or Trap?

    Discover the characteristics of closing funds, the reasons why they close and key factors to consider.
  6. Mutual Funds & ETFs

    3 Expensive Global Mutual Funds Worth Your While (NPFCX, MWEGX)

    Learn about three expensive global mutual funds that offer attractive features to investors. These funds have good historical performance results.
  7. Mutual Funds & ETFs

    The 5 Best American Funds

    Discover five of the best-performing mutual funds offered by American Funds, based on the funds' five-year average annualized returns.
  8. Mutual Funds & ETFs

    Make Sure You Avoid Adding These Mutual Funds to Your 401(k)

    Find out which five types of mutual funds you should avoid in your 401(k), including why buying this year's hottest fund is likely a losing bet.
  9. Mutual Funds & ETFs

    The Top 5 All Cap Core Mutual Funds for 2016

    Learn how to shop for the best all-cap mutual funds, and identify five funds that invest in companies of all sizes and offer good returns with low expenses.
  10. Mutual Funds & ETFs

    Top 5 American Funds for Retirement Diversification in 2016

    Discover five mutual funds from industry leader American Funds with high yields that are perfect for retirement savings diversification.
RELATED FAQS
  1. Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund goes about the process of finding and soliciting ... Read Answer >>
  2. How do I calculate the loan-to-value ratio using Excel?

    Learn what a mutual fund and a money market fund are, and understand the differences between each and how they serve various ... Read Answer >>
  3. What is the difference between a hedge fund and a private equity fund?

    Learn the primary differences between hedge funds and private equity funds, both of which are utilized by high net worth ... Read Answer >>
  4. Do mutual funds pay interest?

    Find out how and why some mutual funds pay interest, and which types of funds make regular dividend distributions to shareholders ... Read Answer >>
  5. Do hedge funds invest in mutual funds?

    Learn whether hedge funds invest in mutual funds. They are permitted to invest in mutual funds but usually avoid doing so ... Read Answer >>
  6. Can mutual funds invest in hedge funds?

    Learn about mutual fund portfolio management techniques and mutual funds' ability to invest in hedge funds, as well as new ... Read Answer >>
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center