While these may not sound an exciting investment option, many Australians already have a managed fund investment via their super. They are also a good option for building wealth.
But choosing a managed fund for yourself can be a confronting experience. With over 10,000 managed funds in Australia, the choice is huge.
But what are they?
Managed funds are investment portfolios of shares that are built and run by professional investment managers. They offer investors access to a diversified range of shares across many different sectors. Depending on the particular fund’s specialty, they will invest in between 50 – 100 different companies. The choice of fund types in Australia is huge, and how much money you need to invest varies too.
Investors (you and me) buy shares (units) of ownership in the fund. When the unit price changes, this is an acknowledgement that the value of the underlying investments of the fund have been altered.
Each managed fund has an ongoing management fee. These vary according to the fund, and cover administrative costs like the salaries of the staff. And in all things money, these vary and are negotiable. Managed funds can also have entry and exit fees, and performance fees in many cases. These fees are all tax deductible.
Each fund is required to offer a Product Disclosure Statement (PDS).
If you are interested in investing in a managed fund, these are some questions to ask yourself, to help decide which type of managed fund best suits you and your financial needs:
- What are your goals – what do you want to achieve from your investment?
- What is your period for investment? Do you have a specific time frame?
- How do you intend to buy and sell your managed fund?
- What are feelings towards risk and volatility? Will you handle sharp rises and falls in the market, or are you after a steady investment?
Here are some things to remember when making your decision about which managed fund best suits you:
- International funds come with currency risk.
- Consider capital gains tax liability issues
- How a fund performed last year is not an indicator of how it will perform in the future
- Unlike DIY shares, as an investor in a managed fund you have no control
- Most experts suggest an investment of at least five years for growth, however a funds’ PDS will provide more information.