Managed funds are an alternative to purchasing direct investments.
In a managed fund, your money is pooled together with other investors to obtain broader market exposure. It is invested by a professional fund manager in a range of asset classes (e.g. cash, fixed interest, shares) in line with an investment objective. Each investor is allocated a number of ‘units’, each unit representing an equal amount of the market value of a fund. If the value of the fund increases, the unit price will rise and vice versa.
During the year you are usually paid income or ‘distributions’ periodically while the value of your investment will rise and fall with the value of your underlying assets.
There are thousands of managed funds on the market today. You can invest in asset-specific funds such as share funds, property funds and bond funds. You can invest in a fund that focuses on local, or global assets. Or you can select a ‘balanced’ fund or ‘growth’ fund that combines some or all of the different asset classes.
Managed funds are unlisted, whereas listed investment companies (LICs) are listed and traded on the sharemarket via your broker. To help you determine what suits you, we’ve summarised below some of the differences you will find between unlisted and listed funds:
|Managed funds||Listed investment companies (LIC)|
Unlisted and held by a professional fund manager
|Listed on the ASX|
|Apply to the fund manager to buy from a prospectus or Product Disclosure Statement (PDS), or via a discount funds broker or financial planner. Apply to the fund manager to sell units.||Buy and sell on the ASX|
|Pays a distribution||Pays a dividend|
|Generally open i.e. new units are issued in line with demand. The fund manager needs to purchase and sell in response to the flow of funds in and out.||Closed i.e. only a finite number of shares on issue. To access shares you need to buy them on the market (unless a prospectus is issued).|
|Investors are allocated units, each representing an equal amount of the market value of a fund.||Share value is determined by supply and demand.|
|Generally takes longer to access your money. Refer to PDS (or Information Memorandum for Wholesale Investors). It may take up to two weeks (but may take much longer where there are conditions on withdrawals from the fund).||Liquid: receive your cash two days after sale.|
|Traditionally higher direct and indirect fund manager fees.||Provides a lower cost alternative.|
|Generally, pays untaxed returns. You may inherit unknown tax issues.||Returns are paid 'after tax', usually in fully franked dividends.|
The abundance of managed funds means that despite all the available research, it can be hard to compare apples with apples. Talk to Burrell to choose a fund that reflects your investment goals, timeframes and risk tolerance.
Contact us for an obligation free conversation.
CALL 1300 4 BURRELL.