What is a managed fund?

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A managed fund is a professionally managed investment portfolio that pools the money of multiple investors. Investment/fund managers are appointed to manage the money within the fund including the selection, buying and selling of the underlying investments.

By pooling money with other investors you may gain access to investments not normally available if you invested directly or enable you to achieve a greater level of diversification. The managed fund structure also allows for the professional management of your money.

If you invest money into a managed fund you will receive a number of ‘units’ in that fund. The number of units you receive is calculated as the amount of money you invest divided by the ‘entry’ unit price on that day. This is why managed funds are also often called ‘unit trusts’. The unit price may increase or decrease in line with the value of the underlying assets.

Investment Options

The investment/fund manager or administrator of the fund, may offer a range of investment options that you can choose to invest in. Each option has different investment goals, timeframes, risk profiles and underlying assets.

Some managed funds may provide a diversified allocation to asset classes based on a risk level. Examples of these include a ‘balanced’ fund which invests approximately half of the money within the portfolio in growth assets such as share and property, with the remainder in more defensive assets such as cash and bonds.

Other funds might invest in a specific type of asset (e.g. Australian shares, international shares, property or cash). There may be different investment styles used to manage the portfolios such as value or growth investing.

When investing in a managed fund you need to choose which options are best suited to your personal preferences and financial goals. This includes consideration for:

Your risk profile
Your investment time horizon
Your need for diversification across asset classes
Your preference to invest in a particular type of investment or asset class

The Product Disclosure Statement (PDS) provides you with information on the investment options and may help you to determine the suitability.

Investment Returns and Taxation

The underlying assets of the managed fund might produce income (including interest, rental income, realised capital gains and dividends) and/or capital growth.

The fund manager will deduct any applicable fees and expenses from the income generated and the remainder is more often than not, distributed to investors (unit holders).

This income is included in the investor’s own tax return and is taxed at the investor’s own marginal tax rate. If franking credits have been derived these will be passed onto investors and can help to reduce tax payable.

If units are sold, this may create a capital gain or loss depending on how the fund unit price has changed since your initial investment and any investment thereafter. If a capital gain has been realised on units held for more than 12 months a 50% capital gains tax discount will apply unless the units were owned by a company.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

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