Managed Funds

man with red jumper looking at stocks

What is a managed fund?

When you invest in a managed fund, your money is pooled together with other investors. An investment manager will then buy and sell shares, or other assets on your behalf.

Instead of purchasing assets directly, you buy and sell ‘units’ in the managed fund. The value of the units in the fund will fluctuate with the value of the underlying assets. Some managed funds will also pay ‘distributions’ or income.

Types of managed funds

There are many different types of managed funds, which are listed below.

Actively managed funds

In these funds, there is an objective for the fund manager to outperform the market by frequently buying and selling securities. The manager makes decisions about how to invest the fund’s money. These funds generally have higher fees than passively managed funds and are suited for investors.

Passive investment funds

Also known as index funds, this is when you buy a portfolio of assets that imitates an index. Index funds are cheaper because you are not paying for a professional to manage your fund.

Single asset class managed funds

Single asset managed funds invest in a single asset class, such as shares, bonds, or property. The following are the main single asset managed funds you can invest in:

Benefits

You save time, as you leave the decision-making to a qualified investment manager. 

The fund manager can take over most administrative requirements associated with your investment.

As your money is pooled with other investors, you are exposed to more assets than you would usually achieve on your own, which diversifies your portfolio.

Earnings can be reinvested, which means the investor can take advantage of compounding.

A regular investment plan can be arranged, where you agree on investing a small amount at a fixed rate and time, therefore benefiting from the dollar-cost averaging strategy

You do not need a lot to start investing - some funds will allow investments with $500.

Consequences

You may incur fees when in a managed fund, and these fees tend to be higher than other investment types. It is important to understand the initial, ongoing and withdrawal fees associated with the investment fund.

Restrictions may apply when it comes to converting your investments to cash when you want to. While you can usually access your money within five or ten days after making a withdrawal request, it is still recommended to read the Product Disclosure Statement carefully. Some managed funds may have limited liquidity, especially in difficult market conditions.

A managed fund may produce income, which means it must be added to the investor’s assessable income. This means that capital gains tax may apply on the sale of investments, which as a result affects assessable income. An increase in assessable income can also impact an individual’s entitlements to tax offsets and other concessions.

However, it is worthy to note that this depends on the type of managed fund and ownership structure.

Managed fund fees

Managed funds usually charge a range of fees so it is important to be aware of these extra costs when considering investing in a managed fund.

Entry fee - This is an upfront fee that is commonly between 1% and 5%.

Contribution fee - Similar to an entry fee, this fee is charged on each additional contribution you make to the fund.

Indirect Cost Ratio - This is an ongoing fee and represents estimated costs that are related to the management of assets for the investment option. This fee can be deducted from investments instead of being directly paid.

Performance fee - This is an additional fee that the fund manager may charge if the investment return is better than the target return.

Adviser service fee - This service fee is an ongoing fee paid to your adviser (if you agree) for providing professional advice and arranging your investments.

If you need more professional advice on managed funds to know if this form of investing is right for you, contact Wagtail Wealth today.

IMPORTANT NOTE: This information is general advice only and does not take into account your personal circumstances, goals and objectives. Therefore, you should consider its appropriateness for your circumstances before acting on this information.

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