Better Investment Rate of Return with Managed Funds

Managed funds are an easy way to invest wisely and achieve a good rate of return. Investment in a fixed term deposit – especially with a fund that invests in real estate – is an easy way to grow to your wealth.

Apart from being a great way to have your money managed by investment professionals, managed funds also simplify the process of building and maintaining an investment portfolio. Instead of tracking a wide range of individual investments, your fund will keep track for you, and the progress of your investment is expressed in one simple unit price.

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A Bit Here and a Bit There

With any investment strategy diversification is important to minimise risk. The resources available to financial institutions are usually greater than those of the individual investor, therefore diversification is much easier as part of a managed fund than it would be if you had to raise the capital for a truly diverse – and therefore more secure – investment yourself.

As an example, if you have $100,000 to invest and you choose to buy real estate, your $100,000 might buy you a small unit that you could rent out. Then your entire financial future hangs on the performance of this one investment. If houses in that area depreciate due to changes in the locale, or you have trouble finding or keeping tenants, or you find out three weeks too late that there are serious structural problems, your financial future is in jeopardy.

By comparison, a managed fund that invests in mortgages has the capital to speculate on a wide range of properties in diverse suburbs, with differing land values, various land uses (residential, commercial etc), and a much lower dependence on the performance of any single investment property. Your future no longer hinges on one little unit because it’s merely a part of a much larger portfolio than you could invest in on your own.

Choosing a Managed Fund

When you’re choosing a managed fund it’s always tempting to just go with the one that offers the best term deposit rate. However, experience dictates that it’s wiser to conduct some deeper research before committing yourself to a fund. Here are some issues to consider:

The decision-makers

What qualifications do the Directors of the fund have? How closely are they involved in the day-to-day running and major investment decisions of the fund? Any managed fund that you invest in should be run by industry professionals – accountants, brokers, people with backgrounds in banking and finance; if you’re investing in a managed fund that invests heavily in property, the decision-making team should include someone with extensive experience in the real estate market.

Mortgage funds – choosing properties and quality mortgages:

Mortgages are very popular investments for managed funds. As mentioned above, any fund that invests in property should have ready access to advice from a real estate market professional.

Consider factors such as the diversification of the properties invested in (geographical diversification – are the properties spread throughout a wide range of suburbs and price brackets? And sector diversification – what property types are invested in, spread across residential, commercial, industrial etc); and what percentage of the value of the property the fund will lend (often 70% of the value for first mortgages, and up to 85% of the value of the property for second mortgages).

A good way to gauge the viability of a managed mortgage fund is to look at the number of loan write-offs; the number of bad debts incurred (mortgages that the fund has granted that have been defaulted on); and the amount of loans in arrears of principal and interest for over 30 days.

Also, every property that is invested in should be valued by a qualified valuer – not a real estate ‘market appraisal’ – and, if possible (especially for smaller funds), every proposed property should be inspected by a qualified employee from your fund to double check that everything is as it should be – good quality control can prevent mishaps.

Income options:

Naturally, it’s your choice how long you wish to invest your money for. When choosing a fund look at factors such as early withdrawal penalties and payment options. Can you have access to the interest earned monthly? Quarterly? Annually? Or will you have to wait until the end of your fixed term period before earning any income from your investment? Choose whichever option suits you best. A high rate of return is useless if you envisage needing an income from your investment before the end of the proposed fixed term.


Economic trends and possible political changes are some other factors to keep a weather eye out for. If you invest heavily in a fund that in turn invests internationally, you’ll want to know where your money is going and whether the governments and economies in question are stable and likely to stay that way. Some financial advisors suggest that investing 15-20% of your capital overseas is a wise move, and it is – as long as the country/countries in question have a good economic climate and aren’t in the throws of political upheavals.

So, now you have a few tips for finding yourself a managed fund that will help to grow your wealth. Once you’ve chosen a fund, or have decided on the sorts of investments that you’d like to be involved with and you’re looking for a fund, there are still some more things to consider before diving in.

This is the first installment of a four-part series of articles to help you cut through some of the financial jargon without getting too much of a headache. The next three installments will look at investment rates, retirement funds and self-managed superannuation. Hopefully they’ll help put you on the right track to grow your wealth.

A final note: This article is not given as professional financial advice. Your personal circumstances have not been taken into account and financial situations vary the world over. You should seek professional financial advice and read the product disclosure statement for any financial product before making a decision.