The basics of managed funds
If you're creating an investment strategy, one of the most important factors you have to think about is what type of asset to actually put your money into. Do you primarily focus on property? Or should you perhaps be thinking about investing in the share market?
One option for accessing investment markets that is increasingly popular is that of managed funds. Before jumping in, though, it would pay to get a handle of some of the basics.
What is a managed fund?
A managed fund is an investment vehicle where you pool your money with other investors. A professional investment manager then makes decisions around which assets to sell and buy on your behalf. Managed funds can be very broad – they can invest across all asset classes, or be very specific and invest in only one market, such as 'blue chip' Australian shares.
What's the advantage of this type of arrangement?
The major benefit of investing in a managed fund is that you can access the returns from a market without having to personally deal with the complexities involved. Knowing which assets to invest in, how much to buy and when to sell them takes experience, knowledge and time, so having a professional do it for you is useful.
Is there any risk?
There is a degree of risk with any investment. However, some are riskier than others. Managed funds tend to be on the lower end of the scale, not only because you're using the services of a professional, but also because you're putting money in with many other investors. With a small amount of capital, you can't diversify, but in a large pooled investment, your risk can be widely spread.
How do I get paid?
You invest by buying 'units' in a managed fund. Depending on the value of the underlying assets, how much these units are worth will change daily, representing capital growth or loss. You will also periodically get what are known as 'distributions' – income paid to you as a return on your investment representing interest, rent or dividends from the underlying assets.
Where do managed funds invest their money?
Managed funds can invest in a range of asset classes, from property and shares to cash and fixed interest. They can also be more concentrated in one particular market. A higher degree of diversity both across and within asset classes also helps to minimise risk.