What is a Managed Fund?
A managed fund is an investment scheme where a professional fund manager pools money from multiple investors to invest in a portfolio of assets. These assets can include stocks, bonds, real estate, and other securities. The primary goal is to achieve specific investment objectives, such as capital growth or income generation, for the investors.
Key Concepts
Managed funds offer several advantages:
- Diversification: Spreads risk across various assets.
- Professional Management: Expert handling of investments.
- Accessibility: Lower entry barriers compared to direct investing.
- Liquidity: Often easy to buy and sell units.
Types of Managed Funds
Managed funds come in various forms:
- Unit Trusts: Common structure, investors own units.
- Investment Bonds: Often have insurance components.
- Exchange-Traded Funds (ETFs): Traded on stock exchanges like shares.
- Hedge Funds: Aim for absolute returns, often using complex strategies.
How They Work
Investors buy units or shares in the fund. The fund manager then uses the pooled capital to buy and sell assets according to the fund’s stated investment strategy. Returns are generated through capital appreciation and income (dividends, interest), which are distributed to unitholders or reinvested.
Applications and Benefits
Managed funds are suitable for various investors seeking:
- Long-term growth
- Regular income
- Specific sector exposure
- Simplified investing
Professional expertise is a significant draw, especially for those lacking the time or knowledge for direct investment.
Challenges and Misconceptions
Common misconceptions include believing managed funds are always superior to direct investing or that they guarantee high returns. Fees, such as management and performance fees, can impact net returns. Understanding the fee structure is crucial.
FAQs
Q: What is a fund manager?
A: A professional responsible for making investment decisions for the fund.
Q: How are returns calculated?
A: Based on the performance of the underlying assets, minus fees.
Q: Are managed funds safe?
A: Risk varies depending on the fund’s assets and strategy. Diversification helps mitigate risk.