What is managed investment?

Pooled investment is another term used to describe managed investment, which includes a pooled sum of funds from investors. The pooled amount is managed by the experts such as fund managers, who sell and buy the investment on behalf of the investors. Managed investment act as a solution for the investors who are looking for experts to manage their investment and gain a strong level of diversification. There are numerous types of managed investments and the most common managed investments are managed accounts, ETFs (Exchange Traded Funds) and managed funds.

Frequently Asked Questions (FAQs)

What are the types of managed investments?

The most common types of managed investments are –

• Managed funds – It is an investment vehicle in which a fund pool is created by many investors and a portfolio investment manager manages the pool of funds as a single portfolio. The investor can purchase units in the managed funds, and they will be entitled to the return along with other investors.
• Managed Accounts – They are like the managed funds; however, the investor is the sole beneficiary of the portfolio of assets that are bought specially for them. In comparison to the managed funds, managed accounts are more tax efficient.
• Exchange traded funds (EFTs) – EFTs are listed on the stock market and can be sold or bought like securities. The investor can create their own portfolio of assets and a range of options are made available to them.

What are the benefits of managed investments?

Managed funds are prioritized by the investors because the decision to buy or sell an asset is conducted by a professional investment manager. Moreover, their expertise involves deciding the time to invest or disinvest in a particular asset. Chiefly, they do all the hard work.

Managed investment also extends the benefit of diversification which cannot be enjoyed by an individual investor. For example, a real estate investor might only invest in commercial office blocks or local property. On other hand, by investing in an international share fund, the investor can own shares in multiple global companies.

What risks are associated with managed investments?

In the managed investments, the professional investment manager takes the decisions regarding the buying and selling of an asset along with the time of trading, however, an actual investor does not trade on behalf of the investor. Therefore, to avoid any risk from the long-term perspective, it is recommended that the product disclosure statement along with other disclosure statements should be analysed carefully. It should be ensured that the investment goals match with the individual goals.

Like any other investment, the managed investments also involve risk. In the context of the managed investments, there is a risk that the portfolio manager does not perform as per their expectations or the set benchmark.

What is the active and passive approach in managed investments?

The managed investments broaden the scope of investment by extending two choices, namely, the passive and active approach. In the active approach, the portfolio managers aim at outperforming the market and delivering returns to the investors. In the passive approach, the aim is to replicate the market indexes returns. The cost of investment differs from the active to the passive approach of investment.

What points to consider before investing in the managed funds?

All the documents related to the managed investment should be read carefully. Product disclosure statement analysis helps in –

• Identifying the asset mix – The PDS mentions the combination of the assets which will be used in each fund. The funds should not be judged on the basis of their name because a provider might use the same term to describe their funds but the fund has a different mix of assets. For example, a conservative fund might have a different combination of assets when compared to a different provider. The PDS does not specify the exact investment as they tend to vary with the passage of time.
• Assessing the portfolio manager’s experience – The experience of the portfolio managers should be checked as the success of the portfolio is dependent upon the skills of the manager. On the basis of their skills, they decide when to sell or purchase a particular security or asset. In case the investment provider has a large turnover ratio, then it should raise red flags.
• Looking for risk indicators – Risk indicator stands for the measurement of the likeliness that the managed investment value will go up or down in the future. For example, if the manager is investing more in the growth assets, then in the case of a volatile market, the risk will be very high and vice versa also holds true. The assets which are more inclined towards the income assets are considered to have low risk.
• Finding out specific risks – The PDS mentions if the investment is suffering from any specific risk. Therefore, it should be checked before making the investment decision. For example, the investment provider might be investing in a specific market and the risk of the portfolio is determined by the market only.

How is tax treated in managed investments?

The income received from the managed investments is treated under taxable income like other incomes such as wages, rent or bank interest. Specific asset classes such as franking credits and dividend imputation provide tax concession, so if the portfolio includes such asset classes, then the investor might enjoy the tax concession.

The holders of the managed investments might have to pay capital gain taxes just like direct shares investors. Capital gains tax is generally payable when the assets are sold for the purpose of gain.