Choosing a managed fund

How to pick a managed fund

There are thousands of managed funds you can invest in, so choosing the right one can seem a bit confusing. Choose a fund that invests in the industries or asset classes you are familiar with and is appropriate for your investment timeframe. You should also consider the fees and charges.

The following tips should help you narrow down your search for a managed fund.

Choose your managed fund type

Managed funds come in all shapes and sizes and it is important to understand the basic differences so that you can choose a fund to suit your needs.

Active and passive managed funds

Funds can be classified by how they are managed. Actively managed funds are where the fund manager buys and sells investments regularly in an effort to outperform a specific market index, such as the ASX200.

Passive investment funds, also known as index funds, simply buy a portfolio of assets that mimic an index, such as the all ordinaries index or the S&P200 index. Index funds generate a return, before fees, that is almost the same as the index it is tracking.

Find out more about active versus passive investing.

Single asset or multi-sector managed funds 

Funds also differ in the types of assets you can invest in. You may choose to invest in:

  • A single asset class, such as shares or bonds or
  • A multi-sector option, such as a balanced or growth fund, which contains a mix of different asset classes.

Single asset managed funds

Here are some of the single asset managed funds to choose from:

  • Cash - cash or cash equivalents, such as the short-term money market deposits, short-term government bonds and bank bills. Cash funds are typically low-risk, short-term investments.
  • Fixed interest and bonds - cash, government bonds, bank bills, or mortgage-backed securities. Like cash, they are typically low risk, short-term investments.
  • Mortgages - mortgage funds generally invest in property loans. You receive income as long as the borrower pays their interest. Interest is generally higher than bank deposit interest, but it is also riskier. Your investment does not go up in value and it may go down if borrowers cannot repay their loans and the property cannot be sold for a good price. The risks of these funds vary greatly depending on the borrower and the purpose of the loan. 
  • Shares - shares or 'equity' in listed companies. These might be in Australia, overseas or both. They offer the potential for high returns but with higher risk.
  • Property - residential, industrial and commercial properties or property developments. You might not be able to withdraw from the fund at short notice, however this is easier if the property trust is listed. You're not guaranteed a fixed rate of interest or return of your capital. 

Mixed asset managed funds

Funds that invest in different types of asset classes, also called multi-sector funds, are labelled according to the types of investments that make up the majority of the portfolio. Different funds use different labels so always check the product disclosure statement (PDS).

Investment mix Typical characteristics


darkblue-legend Around 85% in shares and property
lightblue-legend The rest in cash or fixed interest


Investment: $10,000 after 5 years = $13,500

Expected return: 6.2%
(gross returns before fees, taxes and other costs)

Volatility: High volatility-high

Expect a loss: 4-5 years in 20


darkblue-legend Around 70% in shares and property
lightblue-legend The rest in cash or fixed interest


Investment: $10,000 after 5 years = $13,200

Expected return: 5.7%
(gross returns before fees, taxes and other costs)

Volatility: Medium volatility-low

Expect a loss: 4 years in 20


darkblue-legend Around 30% in shares and property
lightblue-legend The rest in cash or fixed interest


Investment: $10,000 after 5 years = $12,300

Expected return: 4.2%
(gross returns before fees, taxes and other costs)

Volatility: Low volatility-low

Expect a loss: 0 years in 20


darkblue-legend 100% in deposits with Australian deposit-taking institutions


Investment: $10,000 after 5 years = $11,500

Expected return: 2.9%
(gross returns before fees, taxes and other costs)

Volatility: Very low volatility-low

Expect a loss: 0 years in 20

List and unlisted managed funds

Traditionally managed funds were unlisted investments, purchased via an application to a particular fund. The majority of funds still operate in this way. Investors can now purchase some unlisted managed funds through the mFund service.

Investors can also now buy listed managed funds on an exchange, such as the Australian Securities Exchange (ASX). The ASX offers four types of listed managed funds:

  • Listed investment companies (LICs) and trusts (LITs)
  • A-REITs (Australian real estate investment trusts)
  • Infrastructure funds
  • Absolute return funds

Find out more about ASX listed managed funds

Consider your risk and investment timeframe

Now that you have an idea of what you can invest in, consider which of these investments best suits your risk tolerance and investment timeframe. Remember, when investing: the higher the expected return, the higher the risk. For more information, see risk and return.

Don't put all your eggs in one basket. Diversifying your investments reduces your risk and helps smooth out short-term ups and downs in returns. When choosing an appropriate mix of investments consider what returns you need to achieve your goals, over what timeframe and at a level of risk you are comfortable with. Find out more about diversification.  

If you want to add to your initial investment you will need to make sure the fund you choose will allow additional contributions.

Read the managed fund's product disclosure statement (PDS)

Managed funds must provide investors with a PDS, which contains important information to consider before investing. If an adviser has recommended the managed fund, they must provide you with the PDS for the fund they have recommended. If you are unsure about anything in the PDS, talk to your financial adviser or the fund manager.

Look at long-term performance of the managed fund

Just because a fund performed well in one year is no guarantee that it will do just as well the following year. A funds performance over 5-7 years may give you a better indication of how they will perform in the future. You could also compare the performance of the managed fund against an index fund to see if it is keeping pace with the relevant market.

Indicators of a good fund include an above average 5-7 year return and a high fund rating. Morningstar has a fund screener tool that allows you to search for funds based on selected criteria.

Case study: Scott and Belinda choose a managed fund

Young couple choosing a managed fund

Scott and Belinda, both 26, want to buy a house in 8 years. They decide to invest in a managed fund because they want a convenient, diversified investment. Being first-time investors, they decide a balanced fund is best for them, as it offers medium-level risk but still gives them the potential to earn a healthy return over 8 years. Friends had warned them of the fees charged by managed funds so Scott and Belinda read the product disclosure statements of a number of managed funds and used our managed funds fee calculator. They then chose a managed fund with low fees, an investment strategy they were comfortable with and a history of outperforming similar funds. 

Compare managed funds and the impact of fees over time.

Managed funds fee calculator

Ethical investing

Socially responsible investing, also known as 'ethical investing', is about actively exercising choice about the kinds of companies you will or will not invest in based on your own values and beliefs. For more information see Responsible Investment Association.

There are thousands of managed funds available, so choose a fund that reflects your risk tolerance, investment timeframe and interests. Do some research so that you are comfortable with your choice before committing yourself.

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Last updated: 15 Oct 2018