What is a managed fund?

Not everyone has the time to build an investment portfolio and keep an eye on it. Ask yourself the following:

Can I afford to buy a dozen individual stocks?
Do I have the time to monitor a portfolio?
Do I have ready access to information and research?

If the answer is ‘No’ then perhaps you should consider a Managed Fund. They are simple to understand and simple to invest in. A managed fund is basically an investment fund that is managed professionally by an expert fund manager with many years' experience who chooses a variety of investment portfolios that individual investors can buy into.

Managed funds allow you to access certain investments at a fraction of the usual cost because you share these costs with other members rather than having to pay the minimum investment fee on your own. In a managed fund your money is pooled with other investors’ money to create a single strong fund that provides an increase in buying strength. A manager chooses the investments spread across a number different assets more than if you bought an investment such as a share or property directly and each investor owns a proportion of the total fund.

When you invest in a managed fund, you are allocated a number of 'units'. The value of your units is calculated on a daily basis and changes as the market value of the assets in the fund rises and falls. Like shares, managed fund prices will generally rise in value over time giving investors a capital gain and the risk of losing all your investment is smaller, because your money is spread across more than one company.

How much is invested in each asset and mix of investments will depend on what the Fund Manager chooses in accordance to the fund’s rules. The manager is paid to administer the fund and you can benefit from their expertise and experience. The qualified professionals managing your money have access to information, research and investment processes not readily available to individual investors and have a deeper knowledge of the markets in which they specialise. They also continually monitor funds to make sure they remain in line with their original risk rating. Each portfolio’s asset allocation differs according to its risk rating and you can choose the amount of risk you are willing to take.

There are various types of managed fund. Some focus on one particular asset class, others invest in a combination of assets - shares, property, bonds and cash. Once you have bought units in a fund it is usually possible to switch between funds with the same manager if you decide you want a different type.  Of course, you won't have complete control over where your money is invested, that decision is made by the fund manager. But with thousands of funds to choose from, you should be able to find one that reflects the choices you might have made yourself.

Many managed funds offer the convenience of a regular savings plan which can be a way of easing you into the market with limited resources meaning you can add to your investment on a regular basis. Regular investments can often be deducted straight from your bank account.

For many investors, managed funds provide the right amount of control without the time-consuming management required by hands-on investing.

Most professionals would advise somebody to invest in more than one fund if possible; this makes it more likely than you will make an overall profit. However, you should choose a fund that reflects your risk profile, investment timeframe and interests before committing yourself.

There are two types of funds you can invest in: Funds that invest in a single asset, or mixed asset funds that invest in different types of asset classes.

Different funds use different labels so always check the fund's product disclosure statement (PDS), it contains details of its investment style and where it invests, as well as performance data. These documents are often available online, or you can ask your financial planner to provide you with one.

Check out the team behind these funds - you want a team that's stable and reliable.

Consider the fees being charged and whether you can easily switch between sectors.

Finally, don´t judge a managed fund solely on past performance. The top performer from one year is rarely the top performer the following year. Look at results over 5-7 year periods. You can also compare the performance of the managed fund against an index fund to see if it is keeping pace with the market.

Remember the fundamental truth when investing: the higher the expected return, the higher the risk.

date added: 03/04/2013

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