September 26, 2018

Pros and Cons of Investing in Managed Funds

Managed funds are some of the most common investment products. In a managed fund, money from different investors is pooled together and is invested by a professional fund manager. There are different managed funds available depending on the types of assets that investors are seeking.

With a managed fund, you receive money through paid income or distributions. As with any other investment product, it’s crucial to know the benefits and disadvantages. In this article, let’s take a look at the pros and cons of managed funds:

Pros

A professional fund manager is responsible for investing your money

This makes a managed fund a low-stress way to grow your money because the fund manager should know the market and understand which investment options are suitable for you.

Managed funds enable you to diversify your portfolio

With access to investments in different asset classes, industries, companies, and sectors, managed funds allow diversification. You can invest in multiple asset classes at any given time, or just stick to a single asset class but invest across several companies and industries.

Managed funds are cost-effective

If you’re just starting to invest, having a managed fund may be a great option for you as it comes with low minimum requirements on the amount of money that can be invested.

Cons

There is no guarantee

Though your investment is handled by an expert fund manager, there’s still no guarantee that you will earn money. No matter how skilled and knowledgeable your fund manager is, they can still lose money due to factors such as a falling market.

Expect to pay fees even if you lose money

Bear in mind that you’re hiring an expert to invest your money on your behalf, so expect to pay fees whatever the result of investing is.

The dividends or capital gains or distributions are likely to be taxable

In the long run, this may make managed funds less cost-effective than they appear.

Do you have other ideas about managed investment funds? Share your insights in the comments section.

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How do Managed Funds Work?

Everybody wants to build their savings and grow their money. The good thing is, there are so many investment products to explore and choose from. One of them is managed funds. There are a form of a managed investment scheme where your money is pooled together with other investors.

An investment manager or fund manager will be responsible for buying and selling shares or other assets on your behalf. A managed investment fund may be ideal for you if you have some money for investing and would like a qualified individual to handle it for you.

Are managed funds a good investment?

Managed funds offer several advantages. For a start, they enable you to diversify your portfolio. They also allow investors to access different assets without shelling out a lot of money. You can make regular contributions and this makes it easier to complete your tax return.

How will I choose a good fund manager?

When looking at several fund managers, you’ll see that they have their own investment styles. Make sure to do your research and be comfortable with their approach. Keep your investment goals in mind, as the process of selecting companies or assets to invest in will depend on what you want to achieve. Most fund managers tend to go for growth, while others may prefer looking for a combination of growth and value.

How much do you need to invest in managed funds?

Fund managers vary in terms of fees. That’s why it’s important to understand the product disclosure statement before finalising anything. To give you an idea, there are fees when you move your money in or out of the managed fund. There are also management charges, service fees, as well as brokerage and stamp duty costs when you buy or sell units in a fund.

What are the types of managed funds?

There are different types, and it’s important to consider them so you can make a more informed choice in terms of risk profile and potential gains.

  • Income funds – cash, fixed interest, and other investments that generate income; low risk of capital loss
  • Single sector funds – involve only one asset class
  • Multi-sector funds – involve different asset classes that come with different risk profiles
  • Index funds – also known as passive funds or exchange traded funds; the goal is to perform in line with a market index
  • Active funds – a fund that is actively managed to outperform an index
  • Growth funds – investments that are for the long term, such as five years and up

Do you have other ideas on how managed funds work and how to invest in managed funds in Australia? Share your insights in the comments section.

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