Managed funds can be a useful tool for investors, particularly investors who do not have the time or the skills to undertake a lot of research themselves in choosing individual assets in which to invest.
Investing in a managed fund can allow investors to gain exposure to a variety of asset classes without running the risk of being over exposed to any single asset. Different managed funds focus on asset classes as diverse as domestic equities, international equities, cash, real estate, fixed income and funds of funds.
Each managed fund should be run in a profession manner and should also adhere to a predetermined investment mandate that will outline the parameters within which the fund can invest. The scope of this mandate could be a critical element in helping an investor decide of the fund is ‘right’ for them. Some funds will be decidedly ‘high risk’ and others will be ‘low risk’ and investors should make sure that they only invest in a fund that has a similar tolerance to risk as they themselves have.
One of the main benefits of investing in a managed fund is that the fund will have exposure to multiple separate underlying assets, giving the investor exposure to their collective performance without giving too much exposure to any single asset. If one of the underlying assets performs very poorly, it should only have a muted impact on the value of the investment.
Investors buy units of equal value in a fund and if the value of the assets owned by the fund go up, the value of their units will also go up and vice versa. Profits from the sale of assets in the fund and income generated by the assets are passed onto unit holders in the form of distributions.