Understanding managed funds

Managed funds pool the money of many investors. This money is then invested by a professional fund manager who uses the fund's buying power to purchase a wide range of investments.

When you invest in a managed fund, you are allocated a number of ‘units’, rather than shares. Each unit represents an equal portion of the market value of the portfolio of investments. Each unit has a dollar value, known as the ‘unit price’.

During the year, the fund will earn income in the form of dividends (share or property funds) or interest (bonds or cash funds). It may also make profits on investments sold. The fund must pay all this income and realised capital gains to unit holders as ‘distributions’.

For some investors, managed funds provide the right amount of control without the time consuming hands-on management associated with direct investing. The advantages of investing in managed funds include:

• Access to sophisticated investments that may not ordinarily be available or affordable to you as a single investor.
• With a professional fund manager managing your money means you can spend less time monitoring your investments, and you also gain peace of mind knowing that your money is in experienced hands.
• Diversification. Managed funds have the buying power to access different asset classes, companies, industries, sectors and countries. With your savings spread across different asset classes, you can spread your investment risk and smooth out your long-term portfolio returns.
• Expertise on your side. Qualified investment professionals have access to information, research and investment processes not readily available to individuals.
• Distribution reinvestment. Managed funds make it easy to reinvest your investment earnings so you can take advantage of compounding investment returns. It’s easy because you can purchase additional units in the fund without having to spend extra cash.