The Ultimate Guide to Managed Funds in Australia for 2025
Managed funds pool money from multiple investors to invest in assets like shares,
bonds, and property, with professional fund managers making key decisions. They
offer diversification, transparency, and flexible investment strategies.
Choosing the right fund depends on your investment goals, risk tolerance, and time horizon. Funds are categorized into growth, income, and balanced, each catering to different financial objectives and investor profiles, from conservative to aggressive.
Key topics covered include comparing funds, understanding fees, tax implications, and using tools for informed decision-making. Real investor scenarios and ongoing management tips help guide long-term investment success.
Understanding Managed Funds: A Practical Overview
A Managed fund pools money from multiple investors, which is then invested in various assets such as shares, bonds, property, and cash. Professional fund managers handle the investment decisions, aiming to achieve the best returns for the fund’s investors. The investors own units in the fund, and the unit price fluctuates based on the value of the assets held within the fund.
Key Features:
Pooled Investment: By combining funds with other investors, managed funds provide access to a broader range of assets and markets, offering diversification.
Professional Management: A skilled fund manager makes the key decisions, including selecting investments and determining when to buy or sell.
Unit Structure: Investors hold units, and the unit price changes as the value of the fund’s underlying assets increases or decreases.
Managed funds are regulated by ASIC, which ensures that funds must meet strict legal standards, providing transparency and accountability in Australia.
Active vs. Passive Fund Management Explained
In Australia, managed funds typically follow one of two management styles: active or passive.
Active Management:
Fund managers attempt to outperform a market index, such as the ASX 200, by making decisions based on research and market trends.
Higher fees are associated with active funds due to the time and effort involved in researching and managing the fund.
Passive Management:
Passive funds aim to replicate the performance of a specific market index without trying to beat it.
These funds have lower fees, as they don’t require constant trading or market research.
How Managed Funds Fit into a Portfolio
Managed funds can serve various roles depending on your investment goals, time horizon, and risk tolerance.
Common Uses:
Core Holdings: A diversified managed fund can be the foundation of your portfolio, providing long-term growth.
Income Generation: Funds focused on stable returns, such as fixed-income or dividend-paying funds.
Thematic Exposure: If you’re interested in specific sectors like technology, managed funds allow targeted investment.
Managed funds provide a flexible and efficient way to diversify your portfolio, whether you’re focused on growth, income, or specific sectors.
Choosing the Right Fund Based on Your Goals
Choosing the right managed fund depends on your financial goals, risk tolerance, and investment horizon. Aligning these factors helps you tap into some of the best investments 2025 has to offer effectively.
Short-Term vs. Long-Term Investment Objectives
When selecting a managed fund, understanding your investment time horizon is crucial. For short-term investment goals, low-risk funds that prioritize capital preservation and income generation—such as those focused on bonds or cash equivalents—are usually recommended.
In contrast, long-term investment strategies typically involve a longer horizon (5–10 years or more) and may tolerate higher levels of risk for potentially higher returns through growth-oriented funds in shares or real estate.
Understanding your risk tolerance and time horizon will help you select a managed fund that aligns with your investment objectives. Those with shorter-term goals should prioritize liquidity and stability, while those with long-term goals can afford more volatility for greater growth potential.
Growth, Income, and Balanced Fund Strategies
Managed funds are typically categorized based on the investment strategy they follow: growth, income, or balanced. Each strategy has its own risk and return profile, and selecting the right one depends on your financial goals.
Growth Funds: These funds focus on capital appreciation and invest primarily in assets like shares and real estate. They aim for high returns over the long term but come with higher risks and potential volatility.
Income Funds: These funds invest in income-generating assets such as bonds, dividend-paying stocks, and real estate investment trusts (REITs). They provide regular income, making them suitable for investors seeking stable cash flow with lower growth potential.
Balanced Funds: As the name suggests, these funds combine both growth and income investments, balancing risk and return. They are suitable for investors who want a mix of steady income and moderate growth.
The choice of strategy depends on whether you prioritize regular income, long-term growth, or a combination of both.
Risk Profiles and Investor Suitability
Choosing the right fund also depends on your risk profile. Understanding how much risk you’re willing to take will guide your choice of fund, especially when considering lower-risk options like fixed income securities.
Conservative Investors:
Prefer funds with lower risk and steady income, such as income funds.
Focus on capital preservation.
Aggressive Investors:
Willing to take on more risk for higher potential returns.
Prefer growth funds investing in equities and high-growth sectors.
Comparing Funds: What to Look For
Performance Metrics and Benchmarks
When comparing managed funds, it’s essential to assess their performance metrics to understand how well a fund has been performing relative to its goals and market benchmarks.
Key Performance Metrics to Consider:
Historical Returns: Look at the fund’s returns over multiple periods (1-year, 3-year, 5-year).
Benchmark Comparison: Funds should be compared to an appropriate benchmark index (e.g., ASX 200).
Risk-Adjusted Returns: This metric adjusts returns based on the amount of risk taken, providing a clearer picture of the fund’s efficiency.
Understanding Fund Risk:
Standard Deviation: Measures the fund’s return volatility. A higher standard deviation indicates greater risk.
Beta: Measures the fund’s volatility relative to the market. A beta above 1 suggests higher risk.
Fees, MER, and Performance-Based Costs
Understanding the fees associated with a managed fund is crucial, as they directly impact your returns. There are several types of fees you should be aware of.
Key Fees to Consider:
Management Expense Ratio (MER): A fee charged annually based on a percentage of the fund’s assets, which covers management, administrative costs, etc.
Performance Fees: Some funds charge a performance fee if the fund exceeds a specified return threshold.
Entry/Exit Fees: Charges applied when entering or exiting the fund. These are typically one-time fees.
Impact of Fees on Long-Term Returns:
The lower the fees, the more of your returns you get to keep. However, don’t focus solely on low fees; a higher-fee fund with a strong track record might be more beneficial over the long term than a low-cost fund with poor returns.
Fee Comparison Example:
Fund Manager Track Record and Ratings
A fund manager’s track record is a crucial factor when selecting a managed fund. The experience, skill, and past success of a manager can significantly impact a fund’s performance.
Manager’s Experience: Look for managers with a proven track record in managing funds similar to the one you’re considering.
Fund Manager Reputation: Check the manager’s reputation within the investment community and their ability to navigate market downturns.
Morningstar Ratings: Services like Morningstar provide independent ratings that assess the fund’s historical performance and risk.
Fund Manager Evaluation:
Track Record: How long has the manager been in charge? Longer track records often provide better insight into their management style.
Management Philosophy: Is the manager’s investment strategy consistent, or does it change with market conditions?
Using Tools and Calculators for Smarter Decisions
Fee Impact Calculator
One of the most valuable tools for investors is the managed funds fee calculator, such as the Fee Impact Calculator, which helps assess the long-term impact of fund fees on your investment.
Fees may seem small in percentage terms, but when compounded over time, they can significantly reduce your overall returns.
This tool allows you to input your investment amount, expected return, and fund fees to see how fees will affect your final balance after a certain number of years.
For example, a difference in MER of 1% per annum may seem small, but over 20 or 30 years, it can result in thousands of dollars in lost returns.
Australian investors should be particularly vigilant about fees, as they can substantially erode returns from managed funds, especially in a low-interest-rate environment like 2025.
The Fee Impact Calculator not only shows the absolute dollar impact of fees but also compares it across different funds.
This can be particularly helpful when choosing between funds with similar risk profiles and strategies, allowing you to make a more informed decision.
Investment Growth Projection Tool
Another valuable tool is the Investment Growth Projection Tool. This tool allows you to estimate how your investment will grow over time, considering factors like rate of return, initial investment, and regular contributions.
Key Features of the Investment Growth Tool:
Customizable Assumptions: Adjust the expected rate of return, contribution frequency, and investment horizon to see how your investment might grow under different scenarios.
Realistic Forecasting: Accounts for market volatility by allowing you to simulate various market conditions, including best-case, worst-case, and average returns.
Goal Setting: Helps investors set realistic investment goals by showing how much they need to invest to achieve desired outcomes.
The tool allows you to visualize how compound interest works, helping you see the long-term benefits of consistent investing.
Contribution Planner for Regular Investments
Regular contributions to your managed fund can significantly enhance the growth of your investment due to the power of compound interest. The Contribution Planner helps you determine how much to contribute regularly to meet your future investment goals and build passive income ideas Australia investors love.
Benefits of Using a Contribution Planner:
Budgeting: Helps you establish how much you can afford to invest on a regular basis (weekly, monthly, or quarterly).
Targeting Goals: Set specific investment goals (e.g., saving for retirement) and track your progress towards them.
Consistency: Ensures you’re making consistent contributions, which is key to building wealth over time.
How It Works:
Enter your current savings and expected rate of return.
Set your investment goal (e.g., retirement, buying a home, etc.).
Calculate how much to contribute each month or year to meet that goal.
The tool can be incredibly useful for investors who want to ensure they’re on track to meet their financial objectives without feeling overwhelmed by the process.
Understanding Managed Fund Reports and Updates
What’s in a Monthly/Quarterly Fund Report?
Managed fund reports, whether monthly or quarterly, provide essential information about the fund’s performance, holdings, market conditions, and management strategies. These reports help investors stay informed about how the fund is performing, what changes have been made, and the outlook for the future.
Key Elements in a Fund Report:
Performance Overview: Shows how the fund has performed relative to its benchmark (e.g., the ASX 200). This includes return percentages for different periods (1-month, 3-month, YTD, 1-year, etc.).
Top Holdings: Provides a list of the fund’s largest investments, giving you insight into the assets driving the fund’s performance.
Market Commentary: Gives insight into the fund manager’s perspective on economic trends, market conditions, and investment outlook.
Asset Allocation: Details the percentage of the fund invested in various asset classes like equities, bonds, cash, and alternative investments.
Risk and Strategy Overview: Explains the level of risk associated with the fund and any adjustments to the fund’s strategy based on changing market conditions.
By reviewing these key elements, investors can assess whether the fund is on track to meet their objectives and if any adjustments need to be made to their portfolio.
How to Read Fund Performance Charts
Performance charts help investors visually interpret a fund’s historical performance over time. These charts can highlight trends, peaks, and troughs, providing a clearer picture of how a fund has reacted to market changes.
Tips for Reading Performance Charts:
Time Horizon: Pay attention to the time frame covered in the chart (e.g., 1 year, 3 years, 5 years). Short-term charts might show market volatility, while long-term charts reflect a more accurate performance trend.
Comparative Charts: Look for charts that compare the fund’s performance to a benchmark index (such as the ASX 200). This comparison can show how the fund fares in relation to the broader market.
Risk Adjustments: Some performance charts are adjusted for risk using metrics like the Sharpe ratio. This adjustment can offer a clearer view of how the fund performed given the level of risk taken.
Visual Indicators to Watch:
Upward Trend: Indicates consistent positive performance.
Downward Trend: May suggest underperformance or poor market conditions.
Volatility: Sharp fluctuations might indicate high-risk or speculative investments.
Distributions, Holdings, and Market Commentary
Fund reports also provide critical information about distributions, holdings, and market commentary, which help you understand the current state of the fund and its strategy.
1. Distributions:
Managed funds distribute income to investors, usually in the form of dividends, interest, or capital gains. These distributions may be reinvested into the fund or paid out to investors.
Frequency: Distribution frequencies vary. Some funds distribute monthly, while others may do so quarterly or annually.
Types of Distributions:
Income Distributions: These could be from interest or dividends earned by the fund’s investments.
Capital Gains: Distributions resulting from the sale of investments that have increased in value.
Distributions are an important factor to consider, especially for investors seeking income or those wanting to reinvest for compound growth.
2. Holdings:
Understanding the fund’s holdings allows you to know where your money is being invested. Look for information on:
Top 10 Holdings: A list of the largest individual investments within the fund. This might include major stocks, bonds, or other assets.
Diversification: Check if the fund is diversified across different sectors, industries, and geographical regions, which can help mitigate risk.
3. Market Commentary:
This section provides insight from the fund manager about current market trends, potential opportunities, and challenges. It may include:
Economic Analysis: Updates on market conditions, interest rates, and inflation.
Fund Strategy: Information on how the fund manager plans to adjust the fund’s strategy based on the current market outlook.
Managed Funds in Superannuation
How Managed Funds Are Used in Super Funds
Managed funds are a popular investment choice for superannuation funds in Australia, providing investors with diversified exposure to various asset classes. Understanding how to set up superannuation is essential to benefit from these professionally managed investment opportunities in a long-term retirement savings plan.
Key Benefits of Managed Funds in Superannuation:
Diversification: Managed funds pool the money of many investors and invest in a variety of assets such as stocks, bonds, and property, reducing the overall risk for individual investors.
Professional Management: Fund managers make investment decisions on behalf of investors, leveraging their expertise and resources to potentially enhance returns.
Cost Efficiency: Super funds with managed funds often benefit from economies of scale, reducing the costs associated with individual investments.
Tailored Strategies: Some super funds offer access to specialist managed funds that focus on specific asset classes or sectors (e.g., Australian equities, international bonds, or sustainable investments).
MySuper vs. Choice Products
In the Australian superannuation system, there are two main types of investment options for members: MySuper and Choice Products—key elements in any comprehensive super fund comparison guide.
MySuper is a default superannuation option designed for members who do not choose their own investment options. It typically offers a balanced mix of growth and income assets. For many Australians, MySuper provides a straightforward and low-cost option for retirement savings, although the level of customization is limited.
Choice Products, on the other hand, allow super fund members to choose from a wider range of managed funds and investment strategies. These options provide greater flexibility, allowing individuals to tailor their super investment to suit their risk tolerance and financial goals.
For investors with a longer retirement horizon or higher risk tolerance, Choice Products can provide an opportunity for more personalized and potentially higher returns. However, they often come with higher fees and more complex management, which is something to consider.
Long-Term Compound Growth Inside Super
One of the most powerful aspects of investing in managed funds through superannuation is the long-term compound growth. Contributions made to super funds are invested in managed funds, which earn returns that are reinvested, leading to exponential growth over time.
The combination of tax advantages and compounding returns can significantly boost your retirement savings. Even small, regular contributions can grow into substantial amounts over the long term, especially when reinvested earnings are allowed to compound.
For Australian investors, starting early and maintaining a disciplined investment approach through superannuation can result in significant wealth accumulation by retirement.
With the Australian Superannuation Guarantee (SG) ensuring mandatory contributions, investors can enjoy the benefits of automated savings and compound growth, which can significantly increase their retirement nest egg.
Tax and Compliance Aspects
Taxable Distributions and CGT Events
One of the most important considerations for Australian investors in managed funds is the tax treatment of distributions and capital gains. Managed funds typically make taxable distributions from income earned within the fund, such as interest, dividends, and capital gains. Understanding how these are taxed is crucial for managing your investment’s after-tax returns.
Key Points to Understand:
Taxable Distributions: Managed funds distribute income earned from investments within the fund. This income may include interest from bonds, dividends from shares, or rent from properties held in the fund.
Capital Gains Tax (CGT): If a managed fund sells an asset for more than its purchase price, a capital gain is realized. You may be required to pay CGT on your share of that gain.
Fund Distribution Frequency: Distributions are typically made on a quarterly, half-yearly, or yearly basis, depending on the fund. You will need to declare these distributions on your tax return.
To minimize tax liability, investors should be aware of tax events within the fund and seek tax advice on how to structure their investment for maximum tax efficiency.
For example, funds with franking credits attached to their distributions may offer tax benefits for Australian investors, as these credits can reduce the tax payable on income.
Annual Tax Statements from Fund Managers
Fund managers issue annual tax statements to investors, summarizing taxable distributions, capital gains, and any other income you’ve received from the fund. These statements provide all the necessary information for lodging your tax return and help simplify the reporting process.
Key Information Found in Annual Tax Statements:
Income Breakdown: Provides a detailed list of income from interest, dividends, and other sources.
CGT Information: Details on any capital gains or losses the fund has made, including your share of them.
Franking Credits: If the fund holds Australian shares that pay franking credits (tax credits attached to dividends), this will also be listed.
These statements are essential for accurate tax reporting and help ensure you comply with tax regulations.
Keeping Records for ATO Reporting
For Australian investors, keeping accurate records of your managed fund investments is critical for tax compliance. The Australian Taxation Office (ATO) requires you to report income and capital gains accurately, and you must retain all relevant documents.
Tips for Keeping Records:
Keep All Fund Statements: Retain monthly, quarterly, and annual statements issued by the fund manager, which outline performance, distributions, and capital gains.
Track Reinvested Earnings: If your distributions are reinvested into additional units in the fund, keep a record of these transactions to calculate your adjusted cost base for CGT purposes.
Document Fees and Costs: Ensure you have records of management fees, advisor fees, and any other costs associated with your investments, as these may be deductible.
Record Retention Timeline:
You must keep records for at least five years after the year of the relevant tax return to comply with ATO regulations.
Tax-Effective Strategies for Managed Funds
In addition to keeping accurate records and understanding taxable events, there are several tax-effective strategies that can help you manage your tax obligations when investing in managed funds.
Common Tax-Effective Strategies:
Tax-Deferred Income: Some managed funds are structured in a way that allows the income to be tax-deferred. This means the fund does not distribute income immediately, which allows the value of the income to grow within the fund before being taxed.
Dividend Imputation: For Australian equity funds, franking credits allow you to offset the tax already paid by companies on your dividends, reducing your overall tax liability.
Investing Through Super: Investing in managed funds through your superannuation account can provide significant tax advantages, including concessional tax rates on investment income and capital gains.
By using tax-effective strategies, you can optimise the after-tax performance of your investments in managed funds.
Investment Platforms and Access Points
Online Platforms (e.g., mFund, InvestSMART, Vanguard)
Online platforms have made it easier for Australian investors to access and invest in managed funds. These platforms act as intermediaries, allowing you to buy and sell units in various managed funds from the comfort of your own home.
Popular Online Platforms:
mFund: mFund is an online platform offered by the Australian Securities Exchange (ASX) that lets you invest in a wide range of managed funds. It allows for direct investment in unit trusts without the need for a traditional broker.
InvestSMART: InvestSMART offers a comprehensive suite of managed funds, including low-cost options, where investors can easily select funds based on their investment goals. It also provides tools and advice to help investors make informed decisions.
Vanguard: Vanguard is one of the largest and most reputable fund managers in the world. It offers a variety of managed funds, from index funds to more actively managed options. Vanguard’s platform is user-friendly and provides investors with an easy way to manage their investments.
Key Benefits of Online Platforms:
Ease of Access: These platforms allow you to make transactions quickly and conveniently from any device.
Low Fees: Many online platforms offer lower fees compared to traditional investment options, making them an attractive choice for cost-conscious investors.
Transparency: Online platforms usually provide real-time data and performance tracking, giving you the tools to manage your investments efficiently.
Robo-Advisors and Digital Advisors
Robo-advisors are a relatively new form of digital investment management that automatically provides financial advice and manages investments for you. They use algorithms to create a diversified portfolio based on your risk profile, investment goals, and financial situation.
Features of Robo-Advisors:
Algorithm-Driven Management: Robo-advisors use sophisticated algorithms to design and manage your portfolio, often at a fraction of the cost of traditional financial advisors.
Low Minimum Investment: Most robo-advisors have low or no minimum investment requirements, making them an accessible option for new investors or those with smaller portfolios.
Automatic Rebalancing: Many robo-advisors automatically rebalance your portfolio to keep it aligned with your goals and risk tolerance.
Popular Robo-Advisors in Australia:
Spaceship Voyager: An Australian robo-advisor that focuses on low-cost, diversified investments, offering both a “Growth” and “Index” portfolio.
Six Park: Another Australian robo-advisor that creates diversified portfolios using managed funds. Six Park’s platform is straightforward and designed for hands-off investors.
While robo-advisors typically charge low fees, it’s important to review their service offerings and compare them with traditional platforms or financial advisors.
Direct Access via Fund Managers
Investing directly through fund managers is an option for investors who prefer to deal directly with the companies that manage the funds. This allows you to bypass online platforms and gain direct access to a variety of managed fund products.
How to Invest Directly with Fund Managers:
Fund Manager Websites: Most fund managers, like Colonial First State, Perpetual, and Magellan, allow investors to directly invest in their managed funds through their websites.
Investment Accounts: By setting up an investment account with the fund manager, you can directly purchase units in their funds, track your investments, and manage distributions.
Tailored Investment Options: Direct access to fund managers may offer a broader range of funds, including niche or specialist products that might not be available through other platforms.
Advantages of Direct Access:
Personalized Advice: Some fund managers provide more personalized investment advice and support for investors who invest directly through them.
Customisation: Direct access allows you to select specific funds that align with your investment objectives, without the limitations of a platform’s predefined offerings.
Real Investor Scenarios and Case Studies
Understanding how different investors approach managed fund investments can help guide your own decisions. Let’s explore three distinct investor profiles: a conservative investor, an aggressive growth investor, and a balanced investor. These case studies will highlight different strategies and considerations based on unique financial goals.
Conservative Investor with Income Needs
Consider a conservative investor in Australia who is nearing retirement and seeks a steady, low-risk income stream. Managed funds that focus on income-producing assets, such as bonds, high-dividend stocks, or real estate investment trusts (REITs), would likely be suitable for this investor.
For example, a conservative investor may opt for a fixed-interest managed fund or a dividend-focused equity fund that provides regular income distributions. These funds would prioritize capital preservation over growth, ensuring that the investor can rely on a steady flow of income while protecting their capital.
The portfolio would likely have a lower allocation to growth assets, such as stocks, and more allocated to defensive assets that provide income. Additionally, a conservative investor may value funds with low volatility and diversified holdings to minimize risk.
Aggressive Growth Investor Focused on Tech
An aggressive growth investor in Australia might look to manage funds with a heavy focus on technology stocks or emerging industries.
For example, a managed fund with a portfolio tilted towards tech companies or start-ups in areas such as artificial intelligence or renewable energy could be appropriate.This investor’s goal would be to maximize capital gains rather than seeking immediate income.
The fund would likely have a high growth component and a more volatile investment strategy. This strategy might include investing in high-risk, high-reward assets with the potential for significant returns over the long term.
Given the investor’s aggressive strategy, they would likely be comfortable with the short-term volatility in exchange for higher long-term growth potential.
A carefully chosen technology-focused managed fund could provide exposure to cutting-edge sectors, allowing the investor to benefit from rapid growth.
Balanced Investor Saving for Retirement
A balanced investor in Australia, who is looking for a blend of growth and income, might choose a balanced managed fund that includes both growth assets (like stocks) and defensive assets (like bonds). This type of strategy suits someone with a medium risk tolerance, such as a person in their 40s or 50s saving for retirement.
In this scenario, the investor would seek a portfolio that provides a combination of steady income (through dividends or interest) and capital growth (through equity investments). The managed fund might offer a diversified mix of local and international assets, which provides a balance between risk and return.
This balanced approach allows the investor to benefit from market growth while minimizing the overall volatility of the portfolio—crucial when planning where to invest $100,000 in Australia: Top 10 Options for 5 Years as retirement nears.
Ongoing Management and Monitoring Tips
Once you’ve invested in managed funds, the journey doesn’t stop there. Ongoing management and review are essential to ensure your investments continue to align with your goals, risk profile, and market conditions.
Reviewing Your Fund Annually
At least once a year, you should conduct a thorough review of your managed fund holdings. This helps you evaluate performance, ensure your fund still suits your objectives, and respond to any major changes.
Review checklist:
Compare performance with appropriate benchmarks.
Assess changes in fund strategy or management team.
Review asset allocation relative to your goals.
Consider life changes (e.g., nearing retirement or new income needs).
This process can be done at the end of the financial year, coinciding with tax planning.
Rebalancing with Other Assets
Over time, market movements may cause your portfolio to drift from your intended allocation. Rebalancing helps you realign your investment mix to manage risk and stay on track.
Key points:
Rebalance by shifting funds between asset classes or adjusting contribution levels.
Avoid frequent rebalancing that may trigger unnecessary fees or capital gains tax.
Review any automatic rebalancing features offered by your platform or advisor.
This keeps your investment risk profile consistent over time, especially if combining managed funds with other assets like shares or property.
Staying Updated with Fund Bulletins
Fund managers release regular updates, which include market commentary, portfolio changes, and future outlooks. Staying informed helps you make better decisions and understand what’s driving fund performance.
Stay alert for:
Monthly or quarterly bulletins
Notices of distribution payments
Manager changes or strategic shifts
Subscribing to fund newsletters and reviewing performance charts can offer deeper insight into your fund’s health.
Originally Published: https://www.starinvestment.com.au/managed-funds-australia-2025-investment-strategies/
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