Back

Choosing a Managed Fund

Greg Medcraft
17th August, 2014

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.

How they work

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.

Choosing a fund

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.

Check the fees

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.

  • Entry fee – Also known as an initial contribution or up-front fee. This is usually between 1% and 5% and will reduce the amount of your initial investment. If you deal directly through the fund or use a discount broker, you may not have to pay this fee or it may be rebated back to you. If you are using an adviser, you may be able to negotiate the amount.
  • Contribution fee – This could be charged every time you contribute to your investment.
  • Management Expense Ratio (MER) – This is an ongoing fee to cover the cost of managing your investment. It is typically between 0.5% and 2.5% per year and will be deducted from your account balance. Funds offering a nil entry fee option will usually charge higher MERs.
  • Performance fee – This is an extra fee the fund manager may charge if the investment return is better than the target return. Basically, it’s a bonus for them for achieving a higher return.
  • Adviser service fee – An ongoing fee paid to your adviser for providing advice and arranging your investments. Your adviser may be prepared to negotiate on this fee.

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.

Greg Medcraft
Chairman
Australian Securities and Investments Commission

CHECK OUT MORE HELPFUL ARTICLES

VIEW ALL ARTICLES

ASIC Launches New Mobile Phone App - MoneySmart Cars

Buying a car is an exciting prospect, particularly if you're buying your first car. It can also be an expensive financial commitment.
Read More

Spending – How Do You Rate

You may think that spending on big things is what gets you into trouble with money.
Read More

The Dos and Don’ts of Successful Savers

When you set yourself a savings goal, whether large or small, short-term or long-term...
Read More
lamp

LOOKING FOR FINANCIAL ADVICE?

Find a financial adviser who will act in your best interests.

FIND A FINANCIAL ADVISER

SIGN UP FOR OUR MONTHLY NEWSLETTER

Want to stay up to date with personal financial issues affecting ADF members and their families? Sign up for our monthly e-newsletter with topical articles by a range of expert contributors.

2LT
AB
AC/W
ACM
ADM
AIRCDRE
AIRMSHL
ASLT
AVM
BRIG
CAPT
CDRE
CMDR
COL
CPL
CPL/BDR
CPO
DR
FLGOFF
FLTLT
FSGT
GEN
GPCAPT
LAC/W
LCDR
LCPL/LBDR
LEUT
LS
LT
LTCOL
LTGEN
MAJ
MAJGEN
MIDN
MR
MRS
MS
NCOCDT
OCDT
OFFCDT
PLTOFF
PO
PTE
RADM
RSM-A
SBLT
SQNLDR
SSGT
VADM
WGCDR
WO
WO-N
WO1
WO2
WOFF
WOFF-AF
Other

NEED HELP?

WE ARE HERE TO ASSIST

GET IN TOUCH