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 you.

How to buy a managed fund

Smart tip

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 PDS.

The information you need to buy and sell managed funds can be found in the fund's PDS which is often available online.

Diversify your investments

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 information.

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 negotiable.
  • 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 higher return.
  • 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 future performance.

Managed funds fee calculator

Check your withdrawal rights

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.

Frozen funds

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 hardship relief.

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 living expenses
  • 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. 

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Last updated: 18 Aug 2015