Categories of managed funds
General funds | Diversified or specialised | Other managed investment schemes
General funds
Managed funds are sometimes referred to as trusts.
1 Cash management
These funds invest only in the money market, and usually only in instruments which are guaranteed or supported by a government, bank or large company. For example, short-term government bonds and bank bills.
2 Fixed interest and bond
These funds invest in a mixture of government bonds, cash and bank bills. They generally aim to outperform an index or other similar fund/s, targeting investors who wish to receive an income stream and maintain the value of their investment over the long term. You should always be aware that returns over the short term may fluctuate or can even be negative.
3 Share (sometimes called equity trusts)
Share funds invest in shares, mainly in listed companies.
4 Mortgage
These funds invest in residential, industrial and commercial property mortgages. Find out more about investing in an unlisted mortgage fund.
5 Property
These funds invest directly or indirectly in residential or (more frequently) commercial properties. The advantage of investing indirectly is that of greater liquidity, as you would only have to sell your interest in the fund as opposed to having to wait to sell the entire property, and your liquidity is higher if the property securities trust is listed. Find out more about investing in unlisted property trusts.
Diversified and specialised funds
As the industry has responded to market demand, new products have been developed within the broad categories of managed funds. They may be specialised or diversified funds.
For example, some funds invest in a range of categories of funds, so as to spread risk. This can be through a diversified portfolio of income-producing assets, such as money market and fixed interest assets, with some exposure to some "growth" assets such as shares and property. Or by investing in a wide variety of asset classes, including shares, property, bonds and cash.
Other funds focus on a specific sector. Some specialised share funds may invest only in Australian shares or overseas shares, or focus on a specific area of the market, like the resource sector, small emerging companies or ethical companies (see 'Responsible' investing). You will also find funds which only invest in Australian companies that produce fully franked dividends, and are designed to take advantage of the dividend imputation taxation rules.
International share funds can involve investments in shares across a variety of countries within a specific region, say the South-East Asia region, or in particular overseas markets, or even a combination of regions and markets.
Other managed investment schemes
These funds are often quite complex. It is a good idea that you get professional advice before investing in one of the following schemes.
1 Investor directed portfolio services
Because it is quite common for investors to hold units in a number of managed funds, products have been developed to simplify managing those investments. These products are called investor directed portfolio services (IDPS) and include investment platforms, master trusts and wrap accounts.
2 Direct real property
From a practical point of view, property syndicates are very similar to unlisted property trusts, the main difference being that you have a legal entitlement (along with all the other investors) to the property underlying the fund. With a property trust, another party which holds the property for the benefit of the investors has legal ownership.
3 Primary production and film schemes
These are schemes where the nature of an interest held by investors in that scheme is that of a "grower" of the primary product (eg tea trees, pine trees, paulownia trees, olives, viticulture, beans, coffee etc). The investor/grower usually enters into an agreement with the manager/responsible entity for the scheme to plant, establish and maintain the trees until they are harvested at maturity. Profits from the harvest are distributed according to your holdings in the scheme.
When your interest includes rights to the land on which the scheme operates, the responsible entity must ensure that your rights are protected. That is, the land is registered in your name with the land titles office.
Film schemes operate in a similar way to primary production schemes.
These schemes are often run in a away to maximise taxation benefits for investors. However, there have been a number of times when the purported tax benefits of a scheme have been disallowed by the Australian Taxation Office a number of years after people invested. Always make sure that the stated tax benefits do in fact apply. Do not just rely on assertions from the fund manager.
The Australian Taxation Office now provides written product rulings on which schemes fall within certain tax laws. Before investing in a scheme which advertises tax benefits, contact the Australian Taxation Office to find out if it has issued a ruling on the scheme.
4 Serviced strata schemes
A serviced strata scheme can involve a hotel, resort, or apartment block.
We consider that there is likely to be a serviced strata scheme when an investor in a strata (apartment) unit has a right (by agreement or an understanding with the promoter) to a return which depends, in whole or in part, on the use of other investors' strata units (as opposed to common property). For example, your return depends on an arrangement for pooling income or for fairly allocating tenants.
We also consider that there is likely to be a serviced strata scheme when an investor in a strata unit has a right (including by agreement or an understanding with the promoter) to a return which depends, in whole or in part, on an investor's strata unit being used as part of a serviced strata arrangement. For example, you depend on the serviced strata arrangement to receive some kind of fixed or indexed return.
5 Timesharing
A timesharing scheme is a scheme:
- in Australia or elsewhere, where participants are entitled to use, occupy or possess, for 2 or more periods, property to which the scheme relates; and
- that is to operate for not less than 3 years.
Real property time-sharing schemes, for example, commonly include title-based schemes where a purchaser becomes a tenant in common with the right to a share of the real property.
More about timesharing
6 Commercial horse breeding (broodmares/stallion)
The life of broodmare schemes is not restricted to the breeding life of a specific mare, unlike stallion schemes, where the life of the scheme is restricted to the functional life of a particular stallion.
In a stallion scheme, the asset being syndicated is a specific stallion whose identity is known. The promoter usually buys or leases the stallion before the scheme's fundraising. The promoter actively markets the scheme. The manager manages the day-to-day activities of the stallion. The promoter and manager can be the same and may have a substantial interest in the scheme. Usually the promoter issues about 40 "shares" or interests in the scheme. This is because a stallion is usually capable of providing between 40 and 80 stud services per season.
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