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If you have some money to invest and would prefer a professional to make investment decisions for you, a managed fund might be for you.
A managed fund is one type of managed investment scheme.
In a managed fund, your money is pooled together with other investors. Aninvestment managerthen buys and sellssharesor other assets on your behalf.
You are usually paid income or distributions periodically. The value of your investment will rise or fall with the value of the underlying assets.
The investment manager may be called a fund manager or responsible entity.
Exchange traded funds (ETFs) are another type of managed fund that can be bought or sold on a secondary market such as the Australian Securities Exchange (ASX) listing market or the ASX Quoted Assets (AQUA) market. For more information, seeexchange traded funds.
Listed investment companies (LICs) are a type of investment, incorporated as companies and listed on a stock exchange such as the Australian Securities Exchange (ASX).Like managed funds, they have a manager who is responsible for selecting and managing the companys investments. Seelisted investment companiesfor more information.
Managed funds can be a good investment as they:
Can access a broad range of assets or markets with a relatively small amount of cash
Reduce paperwork and make completing your tax return easier
However, depending on the type of managed fund you choose, the convenience may come at a price, as:
You may be charged higher fees than other investment types, though fees vary widely (for example, exchange traded funds often have lower fees than traditional managed funds)
You may not be able to convert your investment to cash when you want to
You rely on the skills of other people and do not control investment decisions
Actively managed funds are those where the fund manager aims to outperform the market by frequently buying and selling securities that they think are going to do better than others.
Actively managed funds are more expensive as you are paying for the investment skills of the fund manager. Unfortunately actively managed funds rarely consistently outperform the market and any extra profits are often outweighed by extra fees paid to the fund manager.
Actively managed funds are suitable for investors that want to concentrate on certain sections of the market or who want more control over the assets they invest in.
Passive investment funds, also known as index funds, simply buy a portfolio of assets that mimic an index, such as the all ordinaries index or the S&P200 index. Index funds generate a return, before fees, that is almost the same as the index it is tracking (some funds may have timing delays).
Index funds are cheaper as you are not paying for investment expertise.
Investors wanting to invest directly in an index fund have a limited choice of fund managers in Australia, however someexchange traded fundsare essentially index funds and they have the advantage of being traded on theASX.
Managed funds can be bought directly from the fund manager, through a financial adviser or an online broker.
Here are the steps to take if you want to invest in a managed fund:
Managed funds may be suitable for people who want to diversify their investments and rely on the skills of investment managers to make the investment decisions. Before you sign up be mindful of the fees and always read the product disclosure statement. If the investment is sold on a secondary market such as the ASX, make sure you keep track of any relevant market announcements.