How to buy & sell managed funds
Diversification on a budget
Investing in a managed fund allows you to diversify your
investment portfolio for a relatively small initial outlay, but
there are a few things you need to know before you hand over your
savings. Here are some tips on picking a fund that's right for
How to buy a managed fund
Read the fund's product disclosure statement before you invest
in a managed fund.
When you invest in a managed fund you are buying 'units' in the
fund. The number of units you get depends on the unit price at the
time you invest. Units are of equal value and the unit price will
reflect the value of the fund's assets, which may change daily.
Typically you will need a minimum of $5,000 to invest although
some funds will let you get started with as little as $1,000.
You can either buy units directly from the fund manager or from
your online broker through their online platform. If you want to
buy them from your fund manager you'll need to complete an
application form which is usually found at the back of the fund's
The information you need to buy and sell managed funds can be
found in the fund's PDS which is often available online.
Investing in a well diversified portfolio that includes a mix of
assets such as shares, property, cash and bonds, is still the best
way of reducing your risk and smoothing out investment returns.
You can choose to invest in a single asset class, such as global
shares, or a specific sector, such as mining shares, but this will
usually mean your returns are much more volatile so you may have
big gains one year and big losses the next. Essentially you are
betting that a particular asset class or industry sector will
outperform all others. See diversification for more
Comparison websites can be a good place to start but be aware of
how they are ranking funds. For example funds may be ranked by 1
year returns however as managed funds are usually a longer term
investment it may be more appropriate for you to consider the 3
year and 5 year returns.
Check the fees
Funds will charge a range of fees for managing your money. Small
differences in fees can have a substantial effect on your returns
in the long term so it is important to understand the fees you will
be charged. Here are some common fees.
- Entry fee - Also known as an initial
contribution or up-front fee. This is usually between 1% and 5% and
will reduce the amount of your initial investment. If you deal
directly through the fund or use a discount broker you may not have
to pay an entry fee or it may be rebated back to you. If you are
using an adviser you may be able to negotiate this fee.
- Contribution fee - This is similar to an entry
fee and is charged on future contributions. This fee may also be
- Management Expense Ratio (MER) - This is
an ongoing fee to cover the cost of managing your investment.
It is typically between 0.5% and 2.5% per year, depending on the
investment option you choose, and will be deducted from your
account balance. Funds offering a nil entry fee option will usually
charge higher MERs for customers who don't pay an entry fee. This
could cost you a lot more over the long term.
- Performance fee - This is an extra fee the
fund manager may charge if the investment return is better than the
target return, basically it's a bonus for them for achieving a
- Adviser service fee - An ongoing fee paid
to your adviser for providing advice and arranging your
investments. Typically between 15 and 2%, your adviser may be
prepared to negotiate on this fee.
Once you have found a couple of funds you like, use the managed
funds calculator to compare the fees and performance of each fund.
Remember that past performance is not a reliable indicator of
Managed funds fee calculator
Check your withdrawal
Before you invest, check if there any fees or restrictions on
withdrawing from the fund. For example, there may be fees or
penalties for withdrawing your money within the first 3 years.
Listed funds can be bought or sold on a market like the ASX,
similar to the way you buy and sell shares, through a stockbroker.
However, the sale price might not always reflect the underlying
value of the fund's assets.
Unlisted managed funds might impose conditions on your
withdrawal rights (for example, they might freeze withdrawals if
they don't have enough cash to pay them). If lots of other
investors want their money back at the same time as you, there
might be a limit on the number of units you can cash out. Some
unlisted funds do not allow you to get your money back at all until
a certain point in time.
If the fund you're invested in is frozen and you're finding it
hard to pay your regular bills, you may be able to cash in some of
you units under a hardship category. The responsible entity of your managed fund
must apply to ASIC before they can give you hardship relief.
Contact your fund to find out whether ASIC has allowed them to give
You would generally only be able to receive a hardship payment
in one of the following situations:
- If you are unable to meet reasonable and immediate family
- On compassionate grounds (for example, medical costs for
serious illness, funeral expenses, to prevent foreclosure)
- If you suffer permanent incapacity
You should first speak to your investment company to find out
the details about the freeze.
See ASIC's frozen funds information sheet (INFO
111) for more information.
Managed funds make it easy for you to start
investing but you should regularly review your investments and make
sure that they suit your needs.
Last updated: 18 Aug 2015