In a managed fund you pool your money with others and have somebody else manage it all. So managed funds are a form of managed pooled investment schemes.
This is the question we asked Daniel Mikhail of Partners Wealth Group in Sydney. Here is what we learned but please listen in as Daniel Mikhail explains all this much better than we ever could.
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A managed fund is a form of managed investment. To invest into a managed fund, you acquire ‘units’ in the fund from the fund manager and – when you are ready to sell – sell these back to that same manager. The fund manager re-calculates the value of units at the end of each trading day.
Terminology varies from country to country and this can make it very confusing. While Australians tend to refer to managed funds, the US calls these investment funds. Other common names are investment pools, collective investment schemes or simply funds.
Managed funds are either actively managed or passive funds. In active fund the fund manager tries to outperform the market. Active funds are therefore a lot more labour intensive, hence the much higher fees.
Passive funds aka index funds simply buy a portfolio of assets that mimic an index, for example the ASX. This takes a lot less skill and labour, hence passive funds have much lower fees than active funds.
Managed funds are one form of managed investments, but there are others, such as ETFs, LICs and SMAs.
Exchange traded funds (ETFs) are a type of managed investment. Most ETFs track an index, for example the ASX or a bond index, but not necessarily. Just like in a managed fund, the investor is not the owner of the underlying securities.
Listed investment companies (LICs) are incorporated companies, usually listed on the ASX, and operate similar to a managed fund. But different to managed funds, LICs are close-ended, so they don’t issue new shares or cancel existing ones as investors come and go. If an investor wants to leave an LIC, they have to sell their shares on the ASX. LICs pay dividends to investors, often with attached franking credits.
Just like in a managed fund (and different to an SMA), the investor is not the owner of the underlying securities.
Separately managed accounts (SMAs) are a type of managed investment scheme and are also just referred to as managed accounts. Different to managed funds, ETFs and LICs, SMAs are not a form of pooled investment. So the investor is the owner of the underlying securities.
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Last Updated on 29 October 2019