Pooled vs. Separate

• You really can't create a diversified portfolio for $1,000 or less. The mutual fund fixes that limitation. A mutual fund company gathers money from a group of investors to buy different stocks, bonds, or other assets for investment.. Each investor will have a share in those investments. Mutual funds allow you to diversify your investments with a relatively small amount of money.
  
  With SMAs, you have direct ownership in the stocks, bonds and other assets. Your account is individually managed apart from others. There is no pooling of interests.
  
  

Marketability

• Mutual funds can be purchased or redeemed for their net asset value (NAV). Your orders to buy or sell are completed after the stock market's closing bell. You can liquidate the funds quickly.
  
  It takes a little more time as well as paperwork to liquidate a SMA. Allow about a week for your transaction to complete.
  
  

Minimum Investments

• Investors can start in a mutual fund with as little as $50 to $100, depending on the fund manager.
  
  Separately managed accounts have higher minimums. Depending on the portfolio manager, minimum investments can range from $100,000 to $5 million or more.
  
  

Taxes

• Outside of qualified retirement accounts, mutual funds can produce taxable capital gains even if the NAV is less than your original purchase price. By rule, funds must pass along any gains in excess of losses to investors, usually toward the end of the year. If taxes are a big concern for you, you can look into tax-managed funds.
  
  With SMAs, you have direct ownership of securities, and you can ask the portfolio manager to harvest or mitigate losses.
  
  Keep in mind that the tax scenarios are based on U.S. rules. You should always consult tax professionals on such matters no matter where you reside.
  
  

Fees

• Load funds have either up-front or deferred sales charges. There are "no load" funds that don't have up-front sales charges, but may incur a liquidation fee if sold within a certain time frame. Other fees include marketing and distribution costs (known in the U.S. as "12b1 fees"), management fees, expense ratio, and additional expenses, which may be listed in the prospectus or in the statement of additional information (SAI).
  
  SMA fees are typically bundled to include management fees, commissions and advisor fees. Make sure you get all the fee details from your broker or advisor before you invest.
  
  

Reporting

• Mutual fund statements are given out on a quarterly basis. The fund prospectus is sent to you twice a year. You can track the fund's NAV on sites such as Yahoo! Finance or Morningstar,
  
  With SMAs, direct ownership in securities means more detail and transparency. Therefore, your statements could potentially be voluminous. That depends on the portfolio manager's activity. You will receive trade confirmations for every security bought and sold in the SMA.