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How Managed Funds Work

Many Perth financial planners like managed funds because they offer diversification. They are a large part of many investment strategies. At Approved Financial Planners, we recommend any of a number of investments, using criteria such as your risk tolerance and financial goals as determining factors.

In another of a continuing series of posts in which we provide basic information for investors in accordance with ASIC and their MoneySmart website, we would like to demonstrate for you how ASIC views managed funds. Remember that we don’t give any specific advice on this blog, nor should anything in this piece be interpreted as individual advice.

How Managed Funds Work

What are Managed Funds?

Managed funds fall under the category of “managed investment schemes.” Your money is placed into a fund with that of other investors. An investment manager uses those funds to make investments on your behalf. This usually involves buying and/or selling shares and/or other assets.*

The funds usually yield periodic income, called “distributions.” The value of your investment is linked to that of the underlying assets. The investment manager is often referred to as the “responsible entity” or “fund manager.”*

Exchange Traded Funds (ETF’s)

ETF’s are a kind of managed fund that is traded on exchanges such as the Australian Securities Exchange (ASX).*

Pros and Cons of Managed Funds

According to ASIC, the positives of managed funds are that they offer diversification and can provide access to a wider range of markets or assets because the investment capital of many is pooled together. In addition, they are less paperwork and make it easier to file a tax return. They also allow you to contribute on a regular basis.

However, ASIC also acknowledges negatives associated with managed funds. Since fees vary widely, managed funds can result in the highest fees of any investment funds. In addition, they can’t always be converted on an immediate basis. Also, the fund manager decides where the funds will be invested.

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