What are managed funds?

  • Managed funds are investment pools run by investment experts.
  • The responsible entity is the company that operates the managed fund, and it appoints the fund's investment manager.

Managed funds are investment pools managed by investment experts. Investing through managed funds enables investors to combine their money into larger pools, which can enable them to take advantage of investment opportunities they may not otherwise be able to afford.

When you make an investment you have two choices: manage the investment yourself as a direct investor or have someone else manage it for you. If you choose to have someone else manage your investment, the
most popular way to do this is to place the money you want to invest into a managed fund.

The money you place in a managed fund is combined with money other people have placed in the same fund. This combined amount is used to buy the fund's assets (that is, make its investments). When an investor uses a managed fund they join forces with other investors, enabling them to participate in opportunities they may not be able to afford when acting on their own.

For example, through managed funds investors can invest in - or gain exposure to - specialist share market portfolios in Australia or overseas, commercial or industrial property, infrastructure projects, bond portfolios or other specialised projects.

Run by experts

The company that operates the managed fund is known as the responsible entity. If your managed fund is a listed investment company, the company board plays the role of the responsible entity and may not specify a separate responsible entity.

It is their job to administer the fund, appoint the fund's investment manager (or selection of investment managers), monitor the fund's investments and market performance, and make sure the fund pays all its operating costs and tax bills.

The job of the investment manager is to ensure that the fund buys the best assets, which have the maximum likelihood of going up in value or making the most investment income, all while minimising the chances of something going wrong.

In most managed funds the investment manager is part of the same company group as the responsible entity - but not always. A good way to check your managed fund's credentials is to look at its offer documents and  website. Good managed funds clearly explain which companies provide these services.

Getting your share

When you invest in a managed fund you are normally assigned units in the fund that are proportionate to the amount of money you have placed in it.

Most managed funds are set up as unit trusts, meaning the fund's responsible entity acts as the fund's trustee. It is responsible for ensuring the fund is properly managed and complies with all relevant laws.

For example, if you place $10,000 into a managed fund where the units are valued at $1 each, the fund manager may assign you 10,000 units from a total fund pool of 1 million units, meaning the fund has $1 million in total  assets.

If, over the next year, the fund's investments increase in value by 10% - so the total pool is worth $1.1 million - your 10,000 units will also increase in value by 10% to $11,000. Each unit would then be worth $1.10.

While most managed funds are unit trusts, a managed fund can also be set up under a company structure where the value of its investments is determined by how much they have increased in value and how much another investor wants to pay you for your share of the fund.

Managed funds are just a structure

Managed funds are formally known as "managed investment schemes". Despite this complex-sounding name, they are merely a legal or holding structure, in much the same way a company is a type of holding structure. Other holding structures include partnerships, family trusts, charitable trusts, super funds and sole traders.

 Different types of managed funds