02.The managed funds guide
Managed funds pool your money with that of other investors.
- The fund manager decides what assets to invest in and monitors ongoing performance.
- Managed funds provide economies of scale, making investments more cost effective for small investors.
- For example, a single Australian share fund may invest in 50 to 60 different companies.
- A diversified portfolio can protect you from the volatility in the price of individual shares and generate higher long-term returns.
All types of managed funds have the following key features in common:
- They’re run by a ‘single responsible entity’ — the fund manager.
- They pull together money from many investors into a big pool that can be used to buy more assets.
- They select investments to generate regular income, capital growth or a combination of income and growth.
- They invest in one or more of the following: domestic and overseas share markets; commercial or residential property; mortgages; cash; or fixed-interest investments (such as government bonds and bank bills).
- You’ll usually have to pay fees for these benefits. You might be charged an entry fee of up to 5% of your investment, ongoing fees (usually between 0.8% and 2.4% per year) and sometimes an exit fee to take money out. Find out more about fees.
Going it alone versus managed funds
Some investors prefer to pick investments themselves -- with enough research you may be able to outperform managed funds.
Even if you prefer to invest directly, consider adding managed funds to your portfolio. They allow you to spread your money over different markets (diversify).
Maximising your investment
Say you had $5000 and wanted to invest in the domestic share market. You could use a broker to buy shares in companies as a ‘direct investor’, or you could purchase units in a managed fund.
As a direct investor, you could only afford to buy a small number of shares in a small number of companies. If, on the other hand, you bought units in a domestic share trust, you could buy part-ownership in a fund that invests in 50 to 60 different Australian companies.
If you want to invest in property, $5000 obviously isn’t enough money to buy a property directly. But if you invest in a property trust, you could end up being a part-owner of shopping malls or city office blocks.