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Why a managed fund?
Managed funds, as the name suggests, are funds which are essentially taken care of for you by others – generally, professionals such as fund managers. They can also be referred to as “unit trusts”. Within the fund are all kinds of investment vehicles – property, local and international shares.
Basically, you pool your savings with a group of other investors into a single fund, allowing you to invest in areas that you may not have been able to afford alone. The two main selling points for managed funds are that 1) an expert investor will be in charge of your money and 2) you get to hold a diversified investment (which reduces your exposure and risk).
Some managed funds can let you invest with as little as $500, but that usually means you would be investing your entire sum in one company. This is a risky strategy, as any financial advisor will tell you. With a managed fund, that $500 could be spread across dozens of firms.
Managed fund fees
More often than not, investing in managed funds entails an entry as well as an exit fee, plus a yearly management charge.
Entry fees
It depends on the type of fund you go for but sometimes you may have to pay an entry fee as high as five percent, and often some of the bigger fund managers claim other perks. If you are searching for no entry fees, cash management funds often have none, as do mortgage trusts. Some financial advisers may be willing to refund the fee if you purchase additional units through them (2020directinvest are a good example of this), as might some of the new “discount brokers” on the market.
Exit fees
Many funds also charge exit fees. This is basically a fee should you decide to withdraw your money, and is often around five percent. However, if you’ve invested with them for a certain amount of time you may not be subject to an exit fee. Furthermore, not all funds charge exit fees. However, if there is no exit or entry fee you may find there are higher ongoing fees – this catches many investors out.
Ongoing fees
You may not be charged entry or exit fees but the ongoing fee may be higher. You’ll have to do the sums to calculate which you’d rather – entry and exit fees or higher ongoing charges. These fees cover the commission that must be paid by the fund to the group you bought into the investment in the first place, as well as admin fees and other costs.
The Investment and Financial Services Association also has some great information about managed funds, fees and charges.
