(see also How YourShare works with Managed Funds)

Investments come in all different forms, shapes and sizes – there are 4 main investment asset types:

• Managed funds
• Shares
• Property
• Fixed interest investments.

Managed funds may invest in any combination of shares, property, or fixed interest investments. Each managed fund has a Product Disclosure Statement (PDS) which will detail the funds investment mix and philosophy. Attached to the back of the PDS is the application form to buy units in the fund, or set up a regular investment plan with the fund manager.

Managed funds come under different rules to superannuation and pension funds, however many of the principles are the same in terms of the pooling of investors resources under professional asset managers with the same goals. Many of the large fund managers will have similar funds available for managed funds, superannuation funds and allocated pension funds. Managed funds may sometimes be referred to as unit trusts, investment trusts, or managed investment schemes.

Managed funds, superannuation and allocated pensions may be bought individually or through a master trust or wrap account. You can access managed funds and master trust or wrap accounts via a funds supermarket like YourShare, through an advisor or directly with the fund managers.

Many advisors advocate managed funds as investments to clients, as managed funds are indirect investments – in that when you own units in a managed fund you hold the legal rights to the benefits of the assets held in the managed fund, but non of the issues of direct ownership.

Managed funds provide investors with the ability to build a balanced and diversified portfolio, without a large outlay in capital. Managed funds have the following characteristics:

• Market access to a broader range of assets than investors may be able to access individually 
• Access to professional asset managers
• Daily fund monitoring, with many managed funds publishing daily valuations for investors to monitor performance
• Diversification within a managed fund and from holding different managed funds in different sectors/asset classes
• Efficiency of being part of a large pool of investors
• Liquidity of investment, as investors may redeem or switch units
• Divisibility, managed investments are divisible by the number of units held in the funds, allowing changes in exposure to different funds to quite precise levels

Regardless of how you access managed funds, master trust or wrap accounts - Fees and costs are associated with your investments. The majority of funds charge an initial entry fee of up to 5% on new investments, and a yearly Management Expense Ratio (MER) of between 0.5% to 3%. The MER includes trailing fees of up to 1.1% on your investments total value paid yearly to your advisors, or where no advisor exists, this payment is retained by the fund manager.

Fees have a big impact on your funds long term performance. The range and level of fees varies between the different fund managers. But as a general rule the higher the fees charged the greater the funds investment returns will need to be to compensate for the fees flowing out of your savings. YourShare can help, for all new investments taken out through YourShare 100% of entry fees and sales commissions will be rebated to you. This rebate also applies to ongoing contributions or saving plans. Plus all investments through YourShare will participate in the YourShare yearly Cash Back service, which collects the trailing commissions your investments generate and rebates YourShare to you.

Its important when selecting a managed fund, that you shop around for a fund that is right for you. You need to be comfortable with the investment strategy, risk profile and types of investments the fund manager invests your money into. Some fund managers have introduced eco funds or green funds, which only invest in shares of environmentally friendly companies.

The first thing to decide is what your goals are, and what level of risk you are prepared to take. Are you looking for rapid growth (which usually means greater risk), tax-efficient asset accumulation or low-risk protection through a balanced fund. Once you've evaluated the level of risk that you are willing to accept in exchange for growth, you should cross-reference and compare the various individual fund managers. A risk profiler can help you understand your own risk profile, click on the link to try the risk profiler.

Elements that you should think about when comparing funds, are how long the fund has been established, how promising its track record looks (especially 3 and 5 year returns), what entry fees and minimum balance are required. Its worth noting that Track-records are figures of the past, and should be treated as such. Simply because a fund has performed exceptionally well in the past, does not guarantee its future performance.

FIDO the consumer website of the Australian Securities and Investments Commission (ASIC) lists the following pros and cons of managed funds.

WHAT IS A MANAGED INVESTMENT SCHEME?

In a managed investment scheme:

• your money is pooled together with money from other investors to buy shares or some other kind of assets
• you get an interest in the scheme. In almost all cases, instead of shares you get units in the scheme. The number of units you receive depends on how much you invest in the scheme.
• a professional investment manager operates the scheme. You do not have day to day control over the operation of the scheme. The manager is called a fund manager or "responsible entity".

You will find managed investment schemes referred to by many different names, but their essential nature is always the same. Other terms you may come across are managed funds, unit trusts, managed trusts, investment trusts, pooled funds, collective investments and investment funds.

REASONS FOR INVESTING IN MANAGED INVESTMENT SCHEMES

Professional management. You may not have the time or the skill to manage your investments and are willing to pay a management fee to a professional manager to do it for you. Theoretically at least, your returns should also be greater because your investment is being managed by a professional.

Diversification. Pooling together large amounts of money enables the managers to invest in a spread of shares or other assets. Therefore, investor dollars are not usually all in one product which could easily fall in value.
If your planner recommends that you diversify your investments across a number of managed funds, make sure the portfolio is truly diversified. It is no good, for example, if your money is placed into three funds which have exactly the same investment strategy. The result will be that your money is invested in basically the same companies or properties in all three funds. That is not true diversification.

Low start-up costs. You can invest relatively small amounts (eg, $1000), which, if it were invested directly in shares, would attract brokerage fees. You can also develop a savings plan, investing small amounts in the scheme on a regular basis.
Minimal paperwork. The fund manager/responsible entity will prepare and send reports to you on the performance of your investments and any distributions you are entitled to.

TIPS: RISKS INVOLVED IN MANAGED INVESTMENT SCHEMES

The scheme is only as good as the underlying investment. If the scheme invests in shares, for example, then a fall in the price of the shares will mean that the price of the units will go down. Investment through a managed fund does not change the basic principles which apply to investing and risk.

Diversifying may mean your profits are diluted. The downside of a scheme diversifying across a number of companies or properties is that your profits are diluted. If one particular company is very successful, your overall result may be pulled down by those other companies that the fund invested in which were not successful.

You lose control of your money. The fund manager/responsible entity has been given responsibility to make the investment decisions for the fund. They may make bad decisions and the price of the units may suffer.

The team working for the fund manager/responsible entity may also change, which can impact on the performance of the fund manager. Sometimes an entire research team can move to another fund manager. This can make the past performance of a fund a misleading indicator of its future profitability. Your financial planner should be able to tell you whether the fund manager’s team is stable or not.

Some funds can be expensive. Fees can add up quickly and you should check them before investing. Almost all funds charge an entry fee which will reduce the amount of your initial investment. This can significantly affect the longer term return of your investment.
You should also check what are the ongoing charges. These charges will be deducted from your returns.

MASTER TRUSTS AND WRAP ACCOUNTS

Because it is quite common for investors to hold units in a number of managed funds, products have been developed to simplify managing those investments. These products are called investor directed portfolio services. The most popular of these products is called a master trust (sometimes called a master fund or a personal investment fund). It is an investment fund which invests in a range of other managed funds.

Please ensure you read fully the Product Disclosure Statement (PDS) of any pension, superannuation or investment product you are considering of investing in.

YourShare recommend anyone who has questions or is confused about superannuation, savings or investment to seek professional advice and contact a reputable fee for service advisor. If you would like to speak to an associated Fee-for-Service Advisors please click this link. Using a financial advisor is about paying a professional advisor to help you with your superannuation, investment and savings goals. Its not about seeing an advisor once, paying an upfront fee then also paying them for the next 10 years. Its your money make it work for you, not someone else.

For more information on managed funds please also refer to Fido, the consumer website of the Australian Securities and Investment Commissions (ASIC), under Superannuation.

Disclaimer
The information in this document reflects YourShare Financial Services Pty Ltd ('YourShare') understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances. The information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision a prospective investor needs to consider, with or without the assistance of a professional adviser whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances.