How Does A Managed Fund Work?

What is a managed fund?

A managed fund is a professionally managed investment portfolio that individual investors can buy into, purchasing 'units' rather than shares. Each managed fund has a specific investment objective. This is usually based around the different asset classes(cash, fixed interest, property and shares). The money you invest is used to buy assets in line with this investment objective.

When you invest in a managed fund, you are allocated a number of 'units'. The value of your units is calculated on a daily basis changes as the market value of the assets in the fund rises and falls.

Why are managed funds so popular?

Around 1.2 million people in Australia have part or all of their investments in managed funds*. So why are they so popular?

1. It's easy to diversify your investments - you have access to different asset classes, companies, industries, sectors and countries.

2. Experts manage your money - the qualified investment professionals managing your money have access to information, research and robust investment processes not easily available to individuals.

3. It's easy to reinvest your investment earnings - and take advantage of compounding. Over 20 years, this compounding effect could mean a huge difference in your investment returns.

4. It's easy to set up a regular investment plan - you can choose small monthly or weekly amounts and transfer your payments on the day you get paid - a strategy also known as 'pay yourself first'.

5. You can invest for income, growth or both - the returns you get from a managed fund usually come in two forms. Income (paid to you as a 'distribution') and capital growth (achieved only when the unit price increases in value).

6. You can start investing with as little as $1,000 - depending on the fund. Investing in a range of shares or a property often involves large sums of money, and sometimes a large loan. Managed funds allow you to access certain investments at a fraction of the usual cost. This is because you share these costs with other members of the fund rather than having to pay the minimum investment fee on your own.