There are thousands of managed funds in Australia. They can differ in what they invest in, what fees they charge and how they manage risk.
Know what you want the fund to do
The right managed fund for you depends on your investing goals, how long you plan to invest and how much risk you are willing to take. New to managed funds? Read What is a managed fund.
You should choose a managed fund that matches what you want it to do.
Ask yourself:
- am I investing for growth, income or both?
- how long do I plan to leave the money invested?
- what if I need quick access to this money?
- could I cope if the value falls for a while?
The same fund will not suit every investor. Your goal, timeframe and comfort with risk should guide the choice.
Different funds do different jobs:
ballot Growth – funds that invest in assets like shares aim to provide higher long-term returns, but have a higher risk of going up and down in value.
ballot Income – funds that offer income tend to invest in bonds, credit and cash, with varying degrees of risk and return.
ballot A mix of growth and safety – balanced or diversified funds aim to provide a mix of growth and income by investing in a range of different assets.
ballot Safety and quick access – funds that invest in cash and bank bills aim to protect your money and ensure it’s quickly available if needed.
ballot Sectors or themes – funds can specialise in a sector like property or technology or a theme like ethical investing.
Comparing managed funds
Once you decide the type of managed fund you want, you can compare different funds. Check:
- what the fund invests in
- whether its investment mix suits your goal
- how long the fund says you should stay invested (investment timeframe)
- the minimum investment amount
- how easy it is to get your money out
- fees
- risks
- how to complain if you have a problem
Most of this information is in the fund’s Product Disclosure Statement (PDS). Read the PDS for each fund before you invest.
Note: If you’re classed as a ‘wholesale client’, which includes a ‘sophisticated investor’, you can buy financial products without a regulated disclosure document such as a prospectus, product disclosure statement, or target market determination. However, this classification is generally based on your income and assets. Always ask to see disclosure documents if you have any uncertainty about how an investment works.
Check who the fund is designed for
Managed funds must publish a target market determination (TMD) that explains who the fund is designed for.
Use the TMD as a quick check that the fund matches:
- your investing goals
- your investment timeframe
- how much risk you are willing to take
- how likely you are to need your money back at short notice
If you are not in the target market, the fund may not suit you.
Daniel matches a fund to his goal
Daniel has retired. He wants his savings to pay him a regular income each month, and to earn more than a bank account. He compares two managed funds. One invests in shares, aims for long-term growth and pays small distributions. The other is a diversified income fund that holds a mix of bonds, credit and other income-producing assets, and pays distributions monthly. Daniel picks the diversified income fund because its monthly payments and focus on income match his investing goals.
Check the details
Look at long-term returns
Past returns are not a reliable guide to future returns. But a fund’s performance over 5 to 10 years can give you an idea of how well it has done the job it was designed to do.
Compare a fund’s returns with:
- an index, to see if it is keeping pace with the relevant market, for example the S&P/ASX 200
- similar funds, to see how it is performing against competing funds
Be cautious of a fund that has not kept pace with its benchmark or peers over the long term, even if last year’s return was strong.
Understand the risks
Each managed fund has different risks depending on what it invests in and how it is managed.
You can use the PDS to check which risks matter most for a fund and if those risks suit your goals and timeframe.
Check fees and costs
Small differences in fees can make a big difference to your investment performance over time.
Managed funds charge fees for managing your money. They can also deduct costs out of your returns, such as transaction costs and borrowing costs.
Common fees include:
- establishment fee, which is the fee to open your investment
- contribution fee, which is charged when you add money
- management fees and costs, which are the ongoing costs of running the fund
- performance fee, which may apply if the fund does better than its benchmark
The fund may also charge fees for transactions, withdrawals, changing investment options or leaving the fund.
See what effect fees have on your investment by using the Managed funds fee calculator.
Check when you can get your money back
Some managed funds let you withdraw fairly easily. Others only allow withdrawals at certain times or after a set period.
Funds can restrict, delay or stop withdrawals in some circumstances.
Check the PDS to see:
- when you can withdraw money
- how long a withdrawal may take
- whether any withdrawal fee applies
- whether the fund can restrict withdrawals
Managed funds are not an appropriate investment for everyone. It’s important to consider your investing time frame and risk tolerance. Learn more about developing an investment plan, and how to seek financial advice.
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