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Investment choices: Managed funds

Date: 21 November 2016

There are many types of investment vehicles to choose from, with managed funds one of the most popular choices in Australia. Here are some of the reasons for investing in managed funds.

What is a managed fund?

Managed funds pool the money of many individual investors. This money is then invested by a professional fund manager in different asset classes (eg shares, property and bonds) in line with the fund’s stated investment objectives. When you invest in a managed fund, you are allocated a number of ‘units’, rather than shares. Each unit represents an equal portion of the market value of the portfolio of investments. Each unit has a dollar value, known as the ‘unit price’. The unit price will vary according to changes in the market value of the investment portfolio or the total number of units issued for the fund.

What types of managed funds are available?

  • Growth funds – Focus on long term capital growth rather than income and are suitable for investors with a time horizon of more than five years. They mainly invest in Australian and/or international shares and property securities.
  • Single sector funds – Invest in just one asset class – either cash, fixed interest, property, Australian shares or international shares. Some also specialise within an asset class – for example geared share funds or global resources funds.
  • Diversified funds – Also known as multi-sector funds, these tend to diversify across a number of asset classes.
  • Index funds – Also known as passive funds or ETFs, these funds aim to achieve performance returns broadly in line with a selected market index (for example the S&P/ASX 200).
  • Active funds – These funds are actively managed and aim to outperform a particular index. The fund manager researches the market and buys and sells assets based on the fund’s objective.
  • Income funds – Focus on generating an income stream with a lower risk of capital loss. These funds tend to invest primarily in cash and fixed interest investments.
  • Multi-manager funds – Sometimes referred to as ‘fund of funds’. Rather than investing directly in shares, cash or fixed interest, this type of fund invests in a selection of other managed funds across a range of different investment managers.

What are the advantages of managed funds?

For some investors, managed funds provide the right amount of control without the time-consuming hands-on management required by direct investing.

The advantages of investing in managed funds include:

  • Access to sophisticated investments: investing in a managed fund gives you access to a range of investments that may not ordinarily be available or affordable to you as a single investor.
  • Diversification: through managed funds, you can access different fund managers, asset classes, companies, industries, sectors and countries. To achieve this level of diversification when investing directly, you would need large sums of money to invest.
  • Your money is managed by experts: the qualified investment professionals managing your money have access to information, research and investment processes not readily available to individuals.
  • Regular investment plans: many managed funds offer the convenience of a regular investment plan – deducted straight from your bank account – so you can add to your investments on a regular basis.
  • Select your investment style: you can choose whether to invest in a managed fund designed to deliver income, or one focused on capital growth.
  • Distribution reinvestment: managed funds make it easy to reinvest your earnings. This allows you to purchase more units with no additional cash outlay and take advantage of compounding over time.

General Advice Warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.


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