A managed fund is a type of unit trust that is also known as a ‘registered managed investment scheme’.
By using a managed fund, investors’ money is pooled together and is used by the investment manager to buy investments and manage them on behalf of all investors in the fund. By pooling funds, investors can gain access to investment opportunities that they may not be able to access if acting on their own.
Being a unit trust, when an investor invests in a managed fund they are assigned units proportionate to the amount of money they have invested. A managed fund is typically open ended, meaning that new units are created as investors join the fund and units are cancelled as investors redeem.
There are a number of different roles that are performed for a retail managed fund by different entities. These include a Responsible Entity, Investment manager, Fund Administrator, Unit Registry and Custodian.
A Responsible Entity is required to have an Australian financial services license and performs the role of trustee of a managed fund. They are responsible for overseeing the operations of the managed fund, monitoring the managed fund’s investments and market performance, and making sure the managed fund pays it operating costs and tax.
They may also act as the fund’s investment manager or they may appoint a third party investment manager. The Investment Manager is responsible for selecting and managing the assets of the managed fund.
The Fund Administrator is responsible for the asset valuations and reporting of the financial book of records of the managed fund.
The Unit Registry is responsible for the processing of all investor related activity and maintenance of the investor book of records of the managed fund.
Finally, the Custodian is an independent financial institution that physically holds the underlying investments of the managed fund. The custodian acts as an important check for managed funds because they help insulate the managed fund from fraud by physically segregating the underlying investments of the managed fund from the party responsible for managing these assets.
Managed funds are an easy way for investors to gain access to a professionally managed portfolio of both local and global stocks.
HOW DOES UNIT PRICING WORK?
When an investor buys into a managed fund, they are buying units in a unit trust. That unit trust in turn buys the underlying investments in the shares of companies that make up the fund’s investment portfolio. When an investor sells units in the managed fund, the opposite occurs.
The return that investors in the managed fund receive is made up of the share prices of these portfolio companies going up or down in value and also the any income and capital returns received from those companies.
Each unit in the managed fund has an equal value and this is known as a unit price and it lets investors know the value of one unit in a managed fund on any given day.
The unit price or Net Asset Value per unit is determined by the net value of the managed fund’s assets, which is the total value of the assets that the fund owns, less any liabilities divided by the number of units on issue.
HOW ARE RETURNS GENERATED BY MANAGED FUNDS?
On a yearly basis, the managed fund may receive income in the form of dividends from the companies in the fund.
Additionally the portfolio manager may decide to sell one or more of the companies held by the managed fund, which may create a gain or a loss from that sale.
The combination of this income and realised net capital gains may be passed on to the underlying unit holder a certain points throughout the financial year. This is called a ‘Distribution’.
When a distribution is made, it ‘uncouples’ from the managed fund and the unit price falls by the amount of the distribution per unit that has been paid out. Investors can choose to have this distribution paid into their bank account or have it reinvested at the lower ex-distribution unit price where there is a Distribution Reinvestment Plan (‘DRP’) available.
The remainder of an investor’s return, their ‘Growth Component’, which is the movement in the share prices of the companies that the managed fund owns, is still locked into the unit price of the fund. So, an investor’s total annual return is made up of these two components – Distributions and Growth.
If the value of the assets that the fund owns increases, then the unit price will increase and if the value of the assets goes down, then the unit price goes down.
HOW TO INVEST IN MANAGED FUNDS
Managed funds can be accessed either ‘off market’, in the case of an unlisted managed fund or they can also be purchased ‘on market’
in the case of a listed managed fund, which can be a Listed Investment Trust (LIT) or an Active Exchange Traded Fund (Active ETF).
For unlisted managed funds, an investor needs to complete an application form and send it into the fund manager’s unit registry. There are minimum investment amounts that could be applicable and these minimums are noted in the managed fund’s Product Disclosure Statement (PDS).
For listed managed funds, such as an Active ETF or LIT, an account with a stockbroker or an online share trading platform (like, CommSec, NABtrade, CMC Markets, Bell Direct, etc) is required, and then an investor can purchase units in the managed funds just like any other stock on an exchange – no paperwork is needed to buy or sell. All that is required is the ticker code of the managed fund, which is generally a three or four letter code, and the desired amount of the investment in the managed fund.
The on-market purchase is done the same way as any other listed security and settlement is after 2 days. Once confirmed, investors can then see the units in the managed fund in their share trading account alongside their other listed investments. Brokerage will vary depending on the platform or stockbroker used.
Minimum trades are normally $500, but can vary between share trading platform/stockbrokers.
HOW ARE MANAGED FUNDS TAXED?
When someone invests in a managed fund, they can expect to pay tax on an annual basis for the distributions that they have received and then when they finally sell or withdraw from the fund, they will pay capital gains tax (CGT)on the remaining portion of growth that has not yet been taxed or incur a capital loss if they sell for less than their cost base.
If the managed fund operates under the Attributed Managed Investment Trust Regime (AMIT), the change in cost base needs to be taken into account when calculating the final amount of the capital gain or capital loss. Given the complexity of this, we recommend that investors seek their own professional tax advice when investing in managed funds.
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Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your investment, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. Investors should be aware of the increased risks associated with investments in foreign/emerging markets securities, high yield securities and smaller companies.
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By clicking "I agree," you agree that you have read the terms detailed below and confirm that:
1) you:
(i) are an "habitual investor" for the purposes of section 3(2)(a)(ii) of the 1978 Act. "Habitual investors" are persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money; or
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Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your investment, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. Investors should be aware of the increased risks associated with investments in foreign/emerging markets securities, high yield securities and smaller companies.You are solely responsible for evaluating the risks and merits regarding the use of the website and any services provided within. Nothing contained in that website constitutes a solicitation, recommendation, endorsement or offer to buy or sell any securities or other financial instruments.
Important Legal Information: By clicking "I agree," the user agrees that I have read the terms detailed below and confirm that I am an investment professional as that term is defined in the Handbook of the Financial Conduct Authority ("FCA") or that I am acting for an investment professional.
Information contained on the Institutional section of this website is not intended for investors in any jurisdiction in which distribution of the information or purchase is not authorized or permitted.
The information is exclusively intended for, and directed at, investment professionals and advisers to investment professionals. Any products and investment services that are referenced on this website are only available to, or will only be engaged in with, investment professionals. Investment professionals will usually fall within one or more of the following categories (terms used have the same meaning as in the FSA handbook):
1) An authorised person;
2) An exempt person;
3) A government, local authority (constituted in any jurisdiction) or an international organisation;
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Persons who do not fall into one of the above categories, or who do not otherwise constitute investment professionals, should not read or rely on the information contained on this website.
The information provided on this website is for information purposes only and nothing on this website constitutes investment, legal, business, tax or any other type of advice.
Any performance data shown represents past performance. Past Performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Investment return and principal value fluctuate so your investment, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. Investors should be aware of the risks associated with investments generally and the increased risks associated with investments in foreign/emerging markets securities, high yield securities and smaller companies.
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Information contained in the Institutional section of this website is not intended for institutional investors in any jurisdiction in which distribution or purchase is not authorized.
The information is exclusively intended for, and directed at eligible counterparties or professional clients as defined under the German Securities Trading Act. For more information, consult your legal adviser.
Nothing on this website constitutes investment, legal, business, tax or any other type of advice. The information on this website does not take into account the particular financial and investment objectives, circumstances and needs of any person. Information on the website is not intended for investors in any jurisdiction in which distribution or purchase is not authorized.
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your investment, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. Investors should be aware of the increased risks associated with investments in foreign/emerging markets securities, high yield securities and smaller companies.
You are solely responsible for evaluating the risks and merits regarding the use of the website and any services provided within. Nothing contained in that website constitutes a solicitation, recommendation, endorsement or offer to buy or sell any securities or other financial instruments.
Important Legal Information: By clicking "I agree," the user agrees that I have read the terms detailed below and confirm that I am a "professional investor" as defined under the Securities and Futures Ordinance of Hong Kong (the “Ordinance”) and any rules made under the Ordinance, and that I wish to proceed.
Information contained in the Institutional section of this website is not intended for institutional investors in any jurisdiction in which distribution or purchase is not authorized.
The information is exclusively intended for, and directed at, professional investors as defined under the Ordinance and any rules made under the Ordinance or as otherwise may be permitted by the Ordinance. For more information, refer to the Securities and Futures Commission of Hong Kong or consult your legal adviser.
Nothing on this website constitutes investment, legal, business, tax or any other type of advice. The information on this website does not take into account the particular financial and investment objectives, circumstances and needs of any person. Information on the website is not intended for investors in any jurisdiction in which distribution or purchase is not authorized.
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your investment, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. Investors should be aware of the increased risks associated with investments in foreign/emerging markets securities, high yield securities and smaller companies.
You are solely responsible for evaluating the risks and merits regarding the use of the website and any services provided within. Nothing contained in that website constitutes a solicitation, recommendation, endorsement or offer to buy or sell any securities or other financial instruments.
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