Join our mailing list

What is a managed fund

18 Jan 2012 11:16 AM -

A managed fund refers to an investment vehicle that pools together different people's money to invest in a range of investments. The investment decisions are made in line with the fund's investment strategy by the fund manager and on behalf of the pool of investors.

Instead of owning the underlying investments yourself, as you do when you buy shares directly, the managed fund owns the investments on your behalf. Most managed funds are divided into units - so when you invest in a managed fund you are usually purchasing units in that fund. The number of units you are allocated will depend on how much money you have invested.

While the number of units you own doesn't change, their value will change in line with the market value of the underlying investments. This is measured by the unit price. There are many different kinds of managed funds offering a range of investment objectives and strategies.

Managed funds generally have a Product Disclosure Statement (PDS), which clearly states the investment objective, benefits and costs of the fund. The PDS also details the types of investments the fund will hold, how the investments will be managed and the types of risk investors can expect.

There are a number of reason why investors often select to invest via a managed fund as opposed to making a direct investment. These include:

Professional Management
Your investment is managed by professional fund managers who are paid to monitor and manage the assets of the fund. These investment experts combine market and corporate knowledge to keep abreast of the markets and companies in which they invest. Fund managers are responsible for investing unitholders' assets in accordance with the fund's investment objectives.

Diversification
As your money is pooled with other investors, you can access a much wider range of investments than you can by investing directly yourself. It would be very costly and difficult to build the same level of diversification as an individual investor. Because managed fund investors enjoy a greater level of diversification than direct investors, they are less exposed to the performance fluctuations of individual shares or securities.

Access Global Investment Opportunities
As an individual investor it is difficult to build up a portfolio of international investments directly. Investing internationally can increase your diversification further and give access to industries and companies not available in Australia. After all, Australia represents less than two per cent of the total world sharemarket.

Long-Term Growth Potential
Managed funds provide the opportunity to grow your money over the long term. Investing in growth assets such as shares and property can help protect the purchasing power of your money over time. The powerful combination of compound returns and time can make a big difference to the value of your investment. It is important to remember that past performance is no guarantee of future performance, and that returns can go up as well as down.

Income
Managed funds can provide a regular source of income. Some funds offer monthly, quarterly or six-monthly income distributions to investors. Investors can choose to take distributions in cash payments or reinvest the money back into the fund. Reinvesting the income you receive on your investments back into the fund can have a compounding effect. This means every dollar you earn on your investment is reinvested, giving you the potential to earn higher returns.

It's Simple
Investing in managed funds is easy. Essentially the only decisions you need to make are deciding on the fund manager and fund type that suit your investment style and objectives. The fund manager takes care of managing your money on your behalf. This means you don't have to worry about trying to time markets and choosing which companies or securities in which to invest.

You Do Not Need Much Money To Get Started
Managed funds are suitable for a wide range of investors: from first-time investors starting out with a small amount, individuals with millions of dollars to major institutions, like superannuation funds.

Flexibility
Most fund managers offer a switching service, which allows you to change funds quickly and easily if your investment needs or circumstances change. You should check the PDS for information about switching, including any costs involved

It’s never too early to invest in your future