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Managed funds masterclass

Education HUB article

10 minute read

Let's start with the fundamentals

 

Why are managed funds becoming so popular? 

  • It’s easy to diversify your investments;
  • You benefit from the skills and knowledge of investment professionals who make the investment decisions;
  • It’s easy to reinvest your earnings letting you maximise the benefits of compound returns;
  • It’s easy to set up a regular investment plan;
  • You get access to hard-to get asset classes such as property or infrastructure and different investment styles;
  • You can choose between funds that return income, growth or both;
  • You can start investing with as little as $1,000; and
  • You can grow your wealth and save for the future.

 

How does a managed fund work? 

A managed fund is a professionally managed investment portfolio where individual customer monies are pooled together with other customers. A team of professional investment managers invest the ‘pooled’ money in a range of assets. By pooling customers’ money, the managed fund can invest in assets which might not have been available for customers to invest in on their own. 

Managed funds can be invested in different types of assets depending on the objective of the managed fund. For example:
Diversified funds invest in a mix of different asset classes. Single asset class funds invest only in Shares, Property, Mortgages, Fixed Interest, Cash etc. Some managed funds have a specific investment focus or objective, such as ‘ethical’, ‘small companies’, ‘industrial’, ‘infrastructure’, ‘international’ and ‘future leaders’ funds etc. 

 

How does a Unit Price work? 

The number of units you own in a managed fund depends on the amount of money you invest and the value of each individual unit at the time of purchase, e.g. If an individual unit is priced at $1.00 today and you invest $10,000, you will receive 10,000 units. If the value of the assets within the Fund increase, the unit price increases and vice versa. This can happen on a daily occurrence. 

This also changes upon distribution, e.g. If the unit price prior to a distribution was $1.00 and the income distribution is $0.02 per unit held, then following a distribution the unit price will generally reduce by the same amount to be $0.98 

 

What is the Indirect Costs Ratio (ICR)? 

It is the total management costs (which does not include transaction and operational costs) that are not deducted directly from an investor’s account during a financial year represented as a percentage of the average net asset value of the Fund. The ICR includes management fees and expense recoveries, but excludes for example certain transaction and operational costs or costs that would be incurred by someone investing directly in the underlying assets 

 

How are Entry (application) and Exit (withdrawal) prices calculated? 

The Application Price (also described as the issue price) is the price at which units are issued when an investor invests in a fund. This is generally calculated by using the Net Asset Value unit price plus the transaction cost factor. 

However, units issued under a distribution reinvestment plan are issued at the Net Asset Value unit price applicable at the date of reinvestment in accordance with each Funds’ constitution. 

The Withdrawal Price (also described as the redemption price) is the price at which units are redeemed when an investor withdraws from a Fund. This is generally calculated by using the Net Asset Value unit price minus the transaction cost factor 

 

Apart from management fees, what are some of the other fees associated with managed funds? 

Some Fund managers may charge other types of fees including but not limited to Establishment fees, Contribution fees, withdrawal fees, terminations fees & switching fees. The types of fees charged can be found in the Fund’s PDS. The fees may vary depending on the underlying investment.

 

Is it a lengthy process to invest in a managed fund? 

It’s easy to start investing and it can be done with as little as $1,000. Firstly, the customer will need to read the Funds PDS and complete the online application form. If the customer requires advice, please send a LINX referral to the Wealth Concierge Team. 

 

How do I keep track of the Funds’ performance? 

You can find information regarding any of the Funds’ performance via our website or upon request. Each Fund will produce an Annual Report which can be accessed via our website or by calling the service team. Unit prices are available via our website and updated daily. 

 

How do I keep track of my portfolio? 

Depending on your type of investment, a statement will be sent either monthly, quarterly or bi-annually. The call centre can access your balance upon request or any local branch. 

 

What if I change my mind, and no longer want to invest after applying? 

Subject to applicable law, retail Investors have access to a cooling-off period relating to their investment except for investments made under distribution reinvestment plans or as additional investments. Details on this are in each PDS. 

Commonly used terms

 

Annual report

A yearly report or statement of a company's financial health. It generally includes a balance sheet and profit and loss statement. Trustees of funds must issue annual reports each year. 

Asset allocation

The percentage of assets held in each asset class (shares, fixed interest, etc.) in an investment portfolio. 

Asset class

A category of financial assets. The major asset classes are shares, property, fixed interest and cash, which in turn can be broken down further to include domestic or international shares, domestic or international fixed interest, direct or indirect property.

Capital

The value of your investment represented by the total assets (what you own) less total liabilities (debts or monies owed). Also refers to the initial amount you invested.

Distribution

Where you buy units in a Fund before a distribution date, the application price will include income accumulated in the Fund since the last income distribution was made. This income will subsequently be distributed and will form part of your taxable income.

Indirect Cost Ratio (ICR) 

A useful measure of the ongoing fees and costs you can expect to pay if you invest in the Funds. It is the total of Management Costs (that is, ongoing fees and costs) of each Fund during a financial year represented as a percentage. It is not deducted directly from an Investor. 

Management Fee 

The total fees and costs incurred in managing the Funds and your investment. They include costs such as Investment Management fees, Responsible Entity fees, administration expenses and other expenses. Management Costs are deducted from the Fund assets as a whole. 

Net asset value

The total assets of a Fund less the total liabilities of the Fund, calculated in accordance with the Fund’s Constitution.

Trustee

The person or company that has the legal responsibility to ensure that the trust or superannuation fund is operated in accordance with the trust deed. 

Unit price 

Most managed funds are unit trusts. When customers invest, their money buys units in the trust. How many units they receive depends on how much they invest and the unit price at the time of the purchase. An investor's unit balance in a fund will remain constant unless they transact on their account (e.g. reinvest distributions, withdraw etc.). The unit price will change according to changes in the market value of the underlying investments, or the total number of units issued for the Fund.

Daily unit prices are available over the phone or online.
Customers can check the value of their investment at any time by multiplying the number of units they hold by the daily withdrawal price.

Not sure what type of investor you are?

Answer a few questions to find out. 

A Wealth specialist can help guide you. Make an enquiry today. 

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