Investing in a managed fund allows you to diversify your investment portfolio for a relatively small initial outlay, but there are a few things to consider before you hand over your savings.
In a managed fund, your money is pooled together with other investors. An investment manager then buys and sells shares or other assets on your behalf.
You are usually paid income or ‘distributions’ periodically. The value of your investment will rise or fall with the value of the underlying assets.
Managed funds can be bought directly from the fund manager, through a financial adviser or an online broker.
Exchange traded funds (another type of managed fund) can be bought or sold on a secondary market such as the Australian Securities Exchange listing market or the ASX Quoted Assets (AQUA) market.
There are thousands of funds available, so choose one that reflects your risk tolerance and investment timeframe.
Comparison websites can be a good place to start your search but be aware of how they are ranking funds. As managed funds are usually a longer term investment, look for the 3 and 5 year returns, rather than the 1 year returns often used as a comparison.
Funds charge a range of fees for managing your money. Small differences in fees can have a substantial effect on your returns so it’s important to understand how much you will be charged. Here are some common fees.
Once you’ve found a couple of funds you like, use the managed funds fee calculator on MoneySmart to compare each fund. Remember that past performance is not a reliable indicator of future performance.
These are the first steps towards choosing a fund that suits your needs. There are other things to also consider. Visit ASIC’s MoneySmart website at moneysmart.gov.au for more information.
Australian Securities and Investments Commission