A managed fund is also known as an Investment Fund.
What is an investment fund?
An investment fund is a type of investment.
The fund is managed by expert investors who decides where to invest the money to get the best growth opportunities. They will generally invest in a mix of different things, such as:
- shares in companies
- bonds, these are loans to other companies or governments
- property developments.
They may invest in one type of investment, which is known as a single asset class. Or they may combine different types of investments, known as a diversified fund. They will use their expertise to decide which investments to buy and sell, and when the right time to do this is. Investment managers are professionals.
When you invest into an investment fund, your money is combined with money from other investors like you. The investment manager uses the combined money to buy, sell and manage the investments for you.
What do I own when I invest in an investment fund?
If you invest money into an investment fund, instead of owning shares in individual companies, you own a share of the combined investment.
You will receive a number of ‘units’ in that fund. The number of units you are allocated depends on how much money you invest. This represents your share of the fund.
The number of units you receive is calculated as the amount of money you invest divided by the unit price on that day. This is why investment funds are also often called "unit trusts".
How does my money grow in an investment fund?
Your investment fund can increase in value by:
- Capital growth - the underlying assets increase over time and this results in the growth of your investment.
- Income - income is based on earnings from the fund’s assets over the period and can include income from shares dividends, rent from property, or interest from cash investment less any costs and this is paid to you.
Like interest in a bank account or term deposit, the investment fund usually pays income or ‘distributions’ periodically, based on the profit or income received from the underlying assets. These distributions can be reinvested or paid into your bank account.
Why does the value of my investment change regularly?
The unit price and the value of your investment will likely change on a daily basis. This is because the financial world is constantly changing. Investments can be influenced by many things, such as:
- political and economic events, both in Australia and around the world
- government decisions
- news and current affairs
- investor emotions
- the supply and demand of different products and services.
Of course, there are a lot more reasons that influence the market. Because of these you’ll notice that your unit price(s) will change. And these may rise or fall in line with the value of the underlying investments of your fund.
What are the benefits of investing in a managed fund?
- Diversification. By investing your money across different asset classes, we aim to lower your portfolio’s risk because different asset classes do well at different times.
- Access to a broad range of investments.
- Having experienced investment managers looking after your money.
- Opportunity to make regular contributions to your investment.
- Ability to withdraw your money at any time.
How is an investment fund different to super?
| Super fund | Investment fund |
|---|---|
| Retirement focussed and has tax advantages to encourage long-term savings. | Your investment distributions are taxed at your marginal rate. |
| There are concessional and non-concessional limits on how much you can add to your super account at a time. | There is no limit to how much you can add to your investment fund at any time. |
| Access to your super fund is restricted by your age, and other conditions of release. | Access to your investment fund is not restricted by your age. You receive periodical distributions, which you can receive as cash or reinvest in more units. |
| There are limits to how much super you can access at a time. | There is no limit to how much you can access at a time. |
What are distributions?
A distribution is profit earned by an investment fund and paid to investors.
Throughout the financial year, an investment fund will earn income from its investments. These could be in the form of:
- dividends
- interest and
- foreign income.
The investment fund may also make gains or losses when investments are sold.
You have the option to either:
- reinvest your distribution. This means you reinvest all distributions in additional units in the fund from which the income was earned, or
- receive a payment in the form of income. This will be deposited to your nominated bank account.
You can change between the options at any time. You can do this by logging in to Member Online or by completing the Member details form.
When are distributions paid?
Depending on the investment fund you have invested in, distributions will be paid at different times.
Quarterly distribution payments
The following investment funds distribute the net income of each Fund at the end of each September, December, March and June quarter:
- Cash Fund
- Capital Stable Fund
- Moderate Fund
- Balanced Fund.
Half-yearly distribution payments
The following investment funds distribute the net income of each fund half yearly, as at the end of December and June:
- Growth Fund
- Australian Equities Fund
- International Equities Fund.
What is dollar cost averaging?
Dollar cost averaging means investing a set amount regularly (eg: $1000 a month) over a period of time. This means that the investment manager might buy the same investment over time at different prices. This is because financial markets move up and down regularly.
If investment prices fall over this time you can buy more units at a lower price. This means you receive more units or shares for the fixed sum of money.
This reduces the total average cost of the investments of the fund over time. This means more assets are bought when prices are low and fewer assets are bought when prices are high.
Do you need to pay tax on an investment fund?
We will provide you with a tax statement in July each year. This has all the information needed to complete your tax return. Log in to Member Online to access.
It is important to remember that you may need to pay tax if you have made a capital gain – this is known as Capital Gains Tax (CGT).
What does Capital Gains Tax apply to?
A wide range of assets are subject to capital gains tax. Examples include:
- investment properties
- shares
- units in an investment fund
- the goodwill in a business.
There are assets that do not have to pay Capital Gains Tax including:
- the home that you live in
- assets purchased before 20 September 1985
- motor vehicles
- some personal assets, for example furniture
- collectables acquired for less than $500. For example art, antiques, jewellery, coins, stamps.
When is Capital Gains Tax paid?
Capital Gains Tax is only paid when you dispose of an asset that has produced a capital gain. It is important to remember that you do not need to “sell” an asset to trigger the tax. Even giving it away is regarded as a disposal, except if it passes to another person as a result of death.
How is the taxable Capital Gain calculated?
The capital gain is equal to the disposal price, after adjusting for selling costs such as agents’ commissions or exit fees, less the cost base.
The cost base includes the cost of the asset plus other costs like stamp duty and brokerage associated with purchasing the asset.
There are two methods you could use:
- 50% discount method: If assets are held for more than 12 months, only 50% of the gain, after the cost base has been deducted, is added to your assessable income and taxed.
- Indexation method: For assets acquired before 21 September 1999, you have a choice between the “indexation method” or the “50% discount method”. Under the indexation method, the asset’s cost base is adjusted to take into account inflation from when you acquired the asset up until September 1999. The indexed cost base is deducted from the disposal price to give the capital gain.
You should speak with your accountant or financial adviser for guidance based on your personal circumstances.
What about capital losses?
Capital losses may be offset against capital gains so that only the net gain is subject to tax.
Capital losses are applied to any gross gain of another asset before applying the 50% discount.
Where losses exceed gains, the excess loss cannot reduce non-capital gain taxable income. However, the loss may be carried forward to future tax years to be offset against future capital gains. Any unused losses do not carry forward to your estate when you die.
Where to next?
The answers to any questions you may have about the Aware Super Investment Funds.
Read more about our latest unit prices, performance and asset allocations.
Book an appointment so we can help you choose investments that are right for you.