Managed Funds

Managed funds, also known as mutual funds, provide investors with the ability to build a balanced and diversified portfolio, without a huge outlay in capital. This works by grouping investors together into a mutual collection of capital that is managed by a qualified investment team. Such a team may invest funds into any or all of the major asset groups (ie cash, bonds, shares and property).

Choosing the Fund for You

While selecting a managed fund, by definition, requires less research than managing your own diversified portfolio, it is still imperitive that you shop around for a fund that is right for you, since your money will generally perform best is investment with a long-term approach through one of these funds and switching funds mid-term can result in substantial fees being paid.

The first thing to decide is what your goals are. Are you looking for rapid growth (which usually means greater risk), tax-efficient asset accumulation or low-risk protection through a balanced fund. Once you've evaluated the level of risk that you are willing to accept in exchange for growth, you should cross-refence and compare the various individual fund managers.

Elements that you should think about are how long the fund has been established, how promising its track record looks (esp 3 and 5-year returns), what entry fees and minimum balance are required. If you feel as though you may need to draw on these funds or change fund manager after just a few months or years, you should also look at how tax-efficient the fund's method of investment proves to be, and how flexible it is in allowing members to draw on their funds.

Of course, though, track-records are figures of the past, and should be treated as such. Simply because a fund has performed exceptionally well in the past, does not guarantee its future. This is where the quality of the management team and fund flexibility becomes a crucial factor.

Morningstar have long been hailed as one of the most objective and reputable providers of investment portfolio information. Use the "Investment Ideas Screener" function on their website to track down invaluable independent information about all of the major managed funds offered in Australia.

Ready to Buy?

You'll find that one of the biggest costs involved with investing in managed funds comes in the form of a hefty entry fee. Where possible, you should try to find a deal that reduces or eliminates this entry fee.

Some of the online brokers, such as Comsec or ANZ eTrade often present special $0 entry offers, whereby they grant you with a rebate made in the form of additional units invested into the fund. Search around to see which reputable Australian online broker offers a feature set and pricing model that best suits you.

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