What type of share ownership is right for me?
Share ownership can be divided into two categories:
Direct ownership – where you buy shares directly, usually through a stockbroker
Indirect ownership – where you buy units in a managed fund which invests in shares on your behalf.
What are managed funds?
A managed fund pools your money with money from other investors to form an investment fund. Specialist investment managers then invest the money in the fund on your behalf. So instead of having $2,000 or even $20,000 to invest, your money has access to the buying power of millions of dollars. This buying power means you can benefit from opportunities normally only available to large corporations or those with extensive knowledge.
Managed funds come in many shapes and sizes. Some funds invest in just one type of investment such as Australian shares, while others known as diversified funds invest across a range of asset classes including Australian shares, international shares, fixed income, property securities and cash.
How are managed funds structured?
Most managed funds are structured as unit trusts. When you invest, your money buys ‘units’ in a fund. The number of units you receive depends on the amount you invest and the current unit price. Put simply, if a unit in a fund was worth $1 and you invested $2,000, you would receive 2,000 units (less the value of an entry fee and transaction costs, if charged).
The unit price reflects the value of the fund’s investments. If the value of the investments rises, the unit price rises. Likewise, if the value of the investments falls, the unit price falls. In many funds, the unit price can go up and down each day depending on the changing value of the underlying investments.
To determine the value of your investment, simply multiply the current unit price by the number of units you hold. Companies that offer managed funds can provide you the latest exit unit price over the phone or on their website.
Which investment is right for me?
When deciding whether to invest in shares directly or through a managed fund, you need to weigh up the benefits and drawbacks of each method of investing.
Direct shares versus managed funds
| Direct ownership | Managed funds | |
|---|---|---|
| Research | Selecting the right shares takes careful research and knowledge. You could do your own research and select the shares yourself. You could also pay a stockbroker for their expertise. | By investing in a managed fund, you are outsourcing the stock selection to the fund managers – trained investment specialists who constantly research and monitor the investment markets. |
| Time management | The administration that comes with holding shares directly can be time consuming, especially if you have several stocks in your portfolio. | When you invest in a managed fund, your fund manager will handle all the paperwork and administration, provide you with regular information on the fund’s performance and provide annual tax statements and tax guides. |
| Diversification | A truly diversified portfolio of shares, property, fixed interest and cash can be very difficult for an individual investor to achieve. You need to invest in several shares to gain diversification benefits. |
One of the greatest benefits of managed funds is that they allow you to diversify your investments. Managed funds can offer diversification benefits across asset classes, within asset classes, or around the world. |
| Cost | A truly diversified share portfolio can be expensive. | Managed funds are a low cost way to access professional investment expertise. |
