How does a managed fund work?
A managed fund is an investment where your money is pooled together with other investors. Think of it like a pot that you and others all put money into, that a professional then manages and invests into different assets on your behalf.
When you invest in a managed fund, you own units in the fund and not the underlying assets. Your units represent the value of your investment, which will change over time as the market value of the assets in the fund rises or falls.
You may earn returns in the form of capital growth (when the unit price increases) and income from distributions, which may be paid out to you or reinvested by allocating you additional units in the fund.
A managed fund is not a guaranteed investment and you can lose money if the market value of the assets falls.
What to consider when choosing a managed fund
Each fund has its own objectives which determine what assets it invests in, and this in turn determines the potential returns and level of risk.
There are two categories of investment assets:
- Growth assets – investments that offer higher potential returns but also have a higher level of risk and the potential for larger fluctuations in value in the short-term (e.g. shares and property).
- Defensive assets – investments that aim to provide steady returns and are generally lower in risk (e.g. cash, gold and fixed income).
It is essential to understand your long-term investment goals (and how they compare to a fund’s objectives and suggested minimum investment timeframe) and your risk appetite before investing. You should also always read the Product Disclosure Statement for a fund before investing and ensure you understand the risks.
How much does investing in a managed fund cost?
Managed fund costs differ and can be charged in different ways so it is important to read the Product Disclosure Statement before you choose to invest.
Management costs and service fees are usually charged as a percentage of the value of the fund. The level of fees will vary depending on factors such as the type of assets being managed and whether it is an actively or passively managed fund.
In addition, transaction costs, or a buy/sell spread, are likely to be charged.
What to consider when choosing a fund manager
Before investing in a managed fund, it is important to be comfortable with the fund manager’s investment style. Doing your research and understanding the fund manager’s track record and the objectives of the fund are important considerations when choosing a manager.
