Author: Daniel Brown
Interested in understanding how investing in managed funds work? Here’s our “how-to guide”.
Fund Managers provide both large and small investors with low-cost access to diverse investment portfolios. Meanwhile, as an investor, you can also choose to invest in a managed fund. Unlike direct share purchases, the managed fund owns the underlying assets and has an investment manager buy and sell them on your behalf.
This may pave the way for you to diversify your portfolio while keeping your initial investment low by investing in a managed fund. Investing in a managed fund will also give you access to funding units.
However, it’s worth noting early on that your units’ value fluctuates daily in accordance with the market value of the fund’s underlying assets. On the other hand, the fund may make regular income distributions based on the income generated by the underlying investments.
Read on to learn more with this initial guide on investing in managed funds.
Investing in Managed Funds: Buying or Selling
Here, your share of the fund is determined by the amount you invest. The amount you invest will equate to units held in the managed fund. The value of a unit is different for each managed fund and will fluctuate.
When buying or selling managed funds, a Product Disclosure Statement (PDS) is usually required. The PDS describes the fund’s investments, how they will be managed, and the risks that investors should be aware of. This can help you match the risk profile of the fund to its investment objectives.
Seeking Expert Management
Fund managers are investing specialists with a team of researchers monitoring and selecting assets to invest or divest in. Depending on the objectives, investment strategy, and risk tolerance of the fund. Professional fund managers manage your money for you, freeing you from the burden of selecting shares or companies.
Estimated Costs and Taxes
A managed fund, like any other investment, incurs expenses. Fees for managed funds must be disclosed in the Product Disclosure Statement (PDS).
Income distributions from managed funds are taxed in the same way that rental income, wages, and bank interest are. Shares, for example, provide tax benefits through dividend imputation and franking credits.
Capital gains tax may apply to managed fund investors in the same way that it does to direct shareholders. Only when an asset is sold for a profit are capital gains taxable.
The Importance of Consistently Investing in Managed Funds
It is difficult to invest by timing the markets. Dollar-cost averaging or regular saving is a strategy used by many investors whereby you invest a fixed amount in a managed fund regularly, regardless of unit price, to help to smooth market fluctuations.
Additionally, you must understand that costs can reduce your return on investment. As a result, before investing, compare fund fees including buy/sell fees, management fees, and potential hidden performance fees which can quickly add up and impact the net return on your investment. Always read the fine print and make sure you know what you’re paying for.
Need Guidance on Investing in Managed Funds?
While dabbling with investments may give you a thrill, know that this comes with a lot of responsibility and some risk as well. This is why it’s crucial to learn more so you make guided and well-informed decisions. At the same time, know that you can always seek the guidance of experts, i.e. a Financial Adviser so that you don’t make mistakes with your hard-earned money.
As you learn more about how managed funds work, take steps forward while minimising risks. There are literally over 10,000 managed funds in Australia to choose from so ensure you understand what you’re investing in or better still seek advice from an expert.
I have personally used Managed Funds to invest my personal funds over the last 25 years and find them easy to use and ensure I stick to my savings plans with a regular and automated regular investment.
Do you need more tips for wealth creation? Central Coast Financial Planning Group is here to safeguard your finances and give you confidence about your financial future. Work with our professional team today – start by booking your complimentary first meeting!
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.