Get Smart With Money


Managed Funds 101

Managed funds provide a simple way to build a diversified, professionally managed portfolio of investments. Basically, you combine your money with other people’s money for the purposes of investing.

Pile of gingerbread peopleAlso called unit trusts or managed investment schemes, managed funds were introduced in Australia in the 1930s. There are now a ridiculously confusing number of funds to choose from, each with different objectives and results. According to the Australian Bureau of Statistics, over $1.3 trillion is currently invested in managed funds in Australia.

How do managed funds work?

Managed funds are run either by large financial institutions such as banks or by smaller specialist management firms. The fund manager is responsible for investing the money individuals put into the fund according to the fund’s objectives.

Most commonly, money from investors is divided into units of equal value. How many units you get for your money depends on their price at the time you buy and how much moolah you invest. Unit prices fluctuate from day to day (this is determined by the market value of the fund’s investment) but the aim is that the value of the units increase over time. You may also receive regular distributions if the fund invests in companies that pay dividends (that is, a payment of cash from a company’s profit to shareholders) and if so you can choose to take these dividends as a payout (in cash) or in units reinvested into your account.

Where is your money invested?

This all depends on the objective of the particular fund. A professional investment manager could invest the fund’s pool of money in any mixture of cash, fixed interest securities (such as government bonds), property, Australian shares or international shares. These groupings of investments are called asset classes.


Pros and cons of investing in a managed fund


Managed funds and tax

Any distributions you receive are classed as income and taxed. You’ll also be taxed on any money you make if and when you sell your units (a capital gains tax).

Moneygirl recommends

Vanguard – Plain Talk Library – Managed Funds

Vanguard’s Plain Talk Library has lots of easy-to-understand general information about managed funds.

Find a financial adviser

Check out the Australian Securities and Investments Commission’s website MoneySmart – it has loads of great information about obtaining personal financial advice and finding a qualified financial adviser. Experts often suggest you find an adviser who charges by the hour instead of receiving a commission.


>> Next in Managed Funds – Types of Managed Funds

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30 Apr 2009 at 8:53 am

Are there any managed funds, where you have a say as to where the money goes?

30 Apr 2009 at 11:05 am

These are called IDPSs (Investor Directed Portfolio Services). The bigger ones, which a financial adviser may recommend, are called wraps or platforms. These can give you some say in that you can choose the underlying managed funds that you invest in – they do involve another level of fees of course 🙂

10 Jun 2009 at 8:38 pm

As someone with a VERY limited knowledge of the world of finance this sounds perfect! Not having invested before is this a good way to start? Maybe even just for a few years? I noticed one of the cons is highs fees, how does this compare to the fees you would pay a broker if investing in shares?

14 Jun 2009 at 1:17 pm

I think managed funds are a great way of investing if you’re just starting (that’s how I got going) but it depends on what you want I guess (e.g. how long you want to invest for). The fees seem to vary widely depending in the type of fund. You’ll tend to pay a broker a one-off fee for a trade whereas managed funds charge an on-going fee.

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