A managed fund is a type of unit trust. By using a managed fund, investors’ money is pooled together and is used by the investment manager to buy investments and manage them on behalf of all investors in the fund. By pooling funds, investors can gain access to investment opportunities that they may not be able access if acting on their own.
Being a unit trust, when an investor invests in a managed fund, they are assigned units proportionate to the amount of money they have invested. A managed fund is open ended, meaning that new units are created as investors join the fund and units are cancelled as investors exit the fund.
There are a number of different roles that are performed in a managed fund by different entities. These include a responsible entity, investment manager and custodian.
Let’s look at a responsible entity first
A Responsible Entity is responsible for overseeing the operations of the fund, monitoring the fund’s investments and market performance, and making sure the managed fund pays it operating costs and tax. They may also act as the fund’s investment manager or they may appoint a third party investment manager.
What does an investment manager do?
The Investment Manager is responsible for selecting and managing the assets of the managed fund. The investment team and a portfolio manager actively select the underlying stocks or shares that go into the managed fund. They undertake deep research into those stocks to determine their position in the portfolio and take into account things like the state of the economy and other factors that could impact the overall performance of the fund.
What does a custodian do?
Finally, the Custodian is an independent financial institution that physically holds the underlying investments of the managed fund. The custodians act as an important check for managed funds because they help insulate the managed fund from fraud.
Managed funds can be an easy way for investors to gain access to a professionally managed portfolio of both local and global stocks but here’s one thing that’s so important: ensure that you read the Product Disclosure Statement applicable to a fund before making a decision to invest or speak with a trusted financial adviser.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
