It is good to invest in managed funds instead of making a direct investment. Here, your money will be clubbed with funds from other investors. This accumulated amount will then be invested across various instruments and asset classes. The fund manager will select the type of investments, and each investor will own a proportion of the managed fund. Intrigued?
Read on to know what managed funds are, their benefits, the role of a fund manager and more.
Managed funds pool individual investors’ money, which a fund manager invests in combined capital of multiple asset classes such as infrastructure and property assets, bonds and shares.
As you make investments in a managed fund, a number of units or shares in that fund will be issued to you. Every unit or share denotes an equivalent part of a fund’s value. A fund may fetch you regular payments by way of distributions or dividends, depending on the income or profits it earns from those investments.
Investors prefer managed funds as it is easier for them to invest through it. A single transaction introduces them to a variety of underlying investments. They can diversify their investments across various market sectors and asset classes.
Managed funds can be broadly categorised as single-asset managed funds and mixed-asset/multi-sector managed funds. Given below are their details:
In this category, the funds focus on a single asset class, for example, property, bonds or shares. The following are the various types of single asset managed funds:
This particular category of managed funds invests in a range of investments. The investments are named based on the asset class that makes up most of their portfolio. Given below are the different types of mixed-asset funds:
The most crucial task of a fund manager is to decide how to spread your investment among asset classes, namely:
Asset allocation is nothing but the manner in which you divide your investment among various asset classes.
Investing in managed funds can be beneficial in the following ways:
A managed fund involves an expert who conducts detailed research on the investment options and the market before making an investment decision. An experienced fund manager with access to strong investment procedures, research and information, will manage an investor’s money. An individual investor cannot readily get a hold of such details.
Managed funds help to diversify an investor’s portfolio as it gives access to various asset classes across countries, sectors, industries, and companies. This pooled investment option allows you to access the asset classes that are not usually affordable to you as an individual investor.
Managed funds offer you exposure to a variety of assets and markets, both international and domestic. It facilitates diversification in a single trade. As such, you’ll get access to the stocks in your underlying fund. The brokerage fee is applicable to just one transaction.
Contrarily, achieving diversification through direct investments can be expensive and time-consuming. Every share purchase involves a brokerage fee. Besides, if you have limited funds, spreading your money may not be a fruitful option.
You may register for a regular savings plan or a regular investment plan under some managed funds. Here, a regular investment plan denotes that an investor can add excess money to his/her managed fund investment at fixed intervals.
A regular investment plan under a managed fund will help in building an extensive investment portfolio.
A managed fund provides income to investors and disburses capital gains as the value of the units in a fund increases.
Also Read: What Is a Dividend Reinvestment Plan?
There are 3 important entities when it comes to the management of managed funds. This includes the following:
A managed fund is a registered investment scheme that operates as a unit trust. Unit trusts denote an unincorporated mutual fund structure where funds directly provide profits to individual investors who own units. Thus, investors are offered managed funds by trusts.
In India, SEBI (Securities Exchange Board of India) has introduced regulations for the structure of mutual funds, a type of managed fund. Mutual funds are operated by sponsors, custodians, trustees and Asset Management Companies (AMC).
You can utilise a managed fund in the following ways:
The investment returns will depend on your asset allocation. You can adjust the asset allocation from time to time for higher profits and favourable returns.
A managed fund ensures that you can conveniently adjust the asset allocation or an asset class under it through a single transaction. You can buy a Managed Fund for increasing your exposure and sell it to reduce exposure.
Spreading your investment across an array of shares may minimise the overall risk since it decreases the effect on the portfolio in case any of the companies underperform.
For instance, Australian shares Managed Funds offer exposure to the stocks in the underlying funds, facilitating rapid diversification to investors, even if their investments are meagre.
Keep in mind the following risk factors before investing:
A fund house charges several administration and management fees that can decrease your returns. Such fees may vary based on the different types of funds and different fund managers. Make sure you are aware of all the fees and associated charges before investing.
Prices of managed funds increase in value with time. However, the prices may also fall below the purchase price.
However, the risk involved in managed funds is lower than that of direct investment in a company’s shares. That’s because a fund manager spreads an investor’s money across different assets, companies and sectors.
Also Read: Taxation Of Dividend income
Managed funds offer favourable returns to investors through their planned and structured approach. Some managed funds keep a low minimum investment limit for investors. So, make sure to learn all the finer details of a fund and keep your investment goals and risk appetite in mind before you invest.
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Yes, a cash management trust is a kind of managed investment in which the primary assets are cash securities. The pooled fund is invested in cash securities (short-term) such as promissory notes, bills of exchange and other money market instruments.
Yes, a property trust comprises collected funds that are invested in various property types such as shopping centres, hotels, industrial and residential properties. A property trust’s units are traded on the stock market, and the unit value can fluctuate over time.
An Australian equity trust is a kind of managed fund investing in only Australian shares. Such investments offer high returns and are ideal for high-risk appetite investors as the shares can be quite volatile.
An international equity trust, a kind of managed fund, invests primarily in international shares worldwide. In this case, shares are quite volatile, but they can fetch favourable returns for investors.
An agribusiness scheme is a type of managed investment that utilises collected funds to make investments in forestry, livestock or farming. Such schemes are suitable for investors with a high-risk appetite as the investments can be prone to damage from uncertain weather conditions and natural calamities.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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