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What are managed funds and how do you invest?

The benefits and risks of getting your money professionally managed by a managed fund.

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Long-term investing can be one of the best financial decisions you can make, but getting started can be difficult. Buying stocks, bonds and other types of investments can also be confusing and risky if you're not an expert. This is where managed funds can be a good option.

What are managed funds?

Let's start with the basics here.

A managed fund is a pool of investors' capital that is managed professionally by a fund manager.

It allows investors the opportunity to enter a market without directly investing themselves in a product, taking much of the hard work out of investing.

When you invest in a managed fund, you get the benefit of expert decision making so you don't have to worry about the day to day.

Different types of managed funds

There are many kinds of managed funds. Some may focus on a particular asset class such as only property, while others may offer investment in a variety of assets, which could include property, cash, shares and bonds.

No matter which type of managed fund you choose to invest in, the principle is the same. You purchase units, which are of equal value in the fund. Like other types of investments, the value of the units you buy can either increase or fall based on whether the value of the assets owned by the fund rise or fall.

It's also important to remember that assets owned by the fund may be sold. When assets are sold, the profits that are generated by these sales plus the previous income generated by the assets are passed on to the unit holders by way of distributions. These distributions are similar to receiving share dividends.

How to choose a managed fund

You might be tempted to look up "best managed fund" and choose the fund with the highest returns.

But, it's important to know what you need out of a financial product as well as the track record of a fund. Remember, "past performance is not a reliable indicator of future returns".

If your personal investment strategy involves capital protection, then a fast growing fund is probably not for you. Instead, before signing up, an investor should have a planned approach when thinking of investing.

In general, here a 5 things you should consider when comparing managed funds:

  1. Understand your personal risk profile, investment objectives and how long you plan to invest. This is generally broken down into conservatively, balanced, growth and high growth.
  2. Managed fund type. With numerous fund types out there, investors should decide if they want an actively managed, passively managed, ethical or even listed or unlisted fund.
  3. Consider the assets. Different funds obviously invest in different products. An investor should understand what assets they want to own.
  4. Past performance. Investors should be looking for a fund with a good long-term track record of providing for their consumers. Although it should be highlighted that 1 good year doesn't suggest a trend of outperformance.
  5. Fees and cost. Remember your returns are net of fees and costs.

Aligning a managed fund with your values

One way you can ethically invest is through managed funds.

The majority of ethical funds will use an approach known as ESG or environmental, social, governance, which will see companies positive or negative screen depending on their performance metrics. Find out more about ESG investing here.

However, there's no universally agreed upon definition of ESG investing, meaning before you invest in any ethically based managed fund make sure you research the underlying holdings and screening criteria to make sure they align with your personal values.

Alternatively if you prefer a stronger stance, you could look for a managed fund that goes beyond ESG and proactively invests in ethically based companies while excluding others.

Managed funds vs ETFs

Managed funds are simply 1 of many types of investment funds, including superannuation funds and exchange traded funds (ETFs). When you get down to it, they're both pretty similar – they invest your money into shares, bonds, property or cash – often a mix of all 4 and more.

Other popular investment funds available in Australia include:

The definitions aren't always clear cut, but most of the time a managed fund refers to a regular investment fund that is not listed on a stock exchange (such as an ETF) or acting as a superannuation account.

Because they're not listed on a stock exchange, you won't normally be able to invest in managed funds via an online share trading platform. Instead you'll need to manually apply directly with the fund manager. However, there are some managed funds that have been registered as mFunds, meaning you can access them with select brokers.

If you've done your research and want to invest in an mFund, you can compare brokers in the table below. Make sure to select a broker with "mFunds" displayed in the markets tab.

Invest in managed funds through a trading platform

1 - 10 of 10
Name Product Standard brokerage fee Inactivity fee Markets International
eToro (global stocks)
US$0
US$10 per month if there’s been no login for 12 months
Global shares, US shares, ETFs
Yes
Zero brokerage share trading on US, Hong Kong and European stocks with trades as low as $50.
Note: This broker offers CFDs which are volatile investment products and most clients lose money trading CFDs with this provider.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
ThinkMarkets Share Trading
$8
No
ASX shares
No
Exclusive: Sign up through Finder and get 3 months of free trading up to 50 trades. Offer available to new customers only.
Following your first three months, enjoy $8 flat fee CHESS sponsored brokerage as well as free live stock data all from the convenience of an easy-to-use mobile app
IG Share Trading
$5 – 8
No
ASX shares, US shares, UK shares, ETFs, and more
Yes
Exclusive: Finder customers who apply for a share trading account in June will be able to trade Aussie shares from $2.50 commission until the end of August. T&Cs apply.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Tiger Brokers
$6.49
No
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
Exclusive to Finder: Sign up to Tiger through Finder and on completion of your first deposit of any amount or transfer of shares receive 4 extra free grab shares. T&Cs apply.
Get started with $0 brokerage on ASX and US stocks for the first 3 months upon completion of your first qualifying deposit. Also receive a free Apple share if you deposit $3,000 or more.
SelfWealth (Basic account)
$9.5
No
ASX shares, US shares
Yes
Trade ASX and US shares for a flat fee of $9.50, regardless of the trade size.
New customers receive free access to Community Insights with SelfWealth Premium for the first 90 days. Follow other investors and benchmark your portfolio performance.
Bendigo Invest Direct
$19.95
No
ASX shares, Global shares, Options trading, mFunds, ETFs, Warrants
Yes
Gain access to 12 markets from one account with Bendigo.
Invest in Australian shares and access major international markets through a trusted local brand. Plus, fine tune your investment knowledge with Bendigo’s advanced research and analysis tools.
GO Markets Share Trading
$7.70
No
ASX shares, Forex, CFDs, ETFs
No
Zero Brokerage on your next 50 trades!
Simply transfer an existing HIN before 30 June and pay no fees on your next 50 transactions. Alternatively, transfer your existing shares and receive 5 transactions at zero cost for each shareholding transferred, once again up to 50 free trades. T & Cs apply
Saxo Capital Markets (Classic account)
$5
No
ASX shares, Global shares, ETFs
Yes
Access 22,000+ stocks on 50+ exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
Get $300 free brokerage until 30 June when you move to Bell Direct. T&Cs apply.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
Superhero share trading
$5
No
ASX shares, US shares, ETFs
Yes
Sign up & fund your account with A$100 or more and receive US$10 of Tesla stocks on Superhero. T&Cs apply.
Enjoy $0 brokerage on US stocks and buying ETFs as well as a flat $5 fee to trade Australian shares.
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Compare up to 4 providers

Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

*Brokerage fees shown are for standard share trading, see below for a list of mFund fees.

The benefits of managed funds

Managed funds can prove beneficial in a number of ways:

  • Diversification. Because you're pooling your money with other investors you can invest in multiple assets and company shares without paying an arm and a leg.
  • Expert assistance. Dealing with investments can be difficult and daunting. When you opt for managed funds you have access to the advice and assistance of expert fund managers. These are the people who not only have the knowledge and expertise that can prove invaluable to investors, but also the time to dedicate to managing multiple assets.
  • Risk reduction. A managed fund will pool your funds into a number of assets reducing your risk. It will also be professionally managed which could reduce the risks.
  • Saving time. You won't have to dedicate huge amounts of time to managing your investments because you have experts on hand to do all the heavy lifting for you.
  • Do more with your money. Using managed funds means that you can still invest even relatively small amounts of money in a range of assets, rather than settling for a single asset due to lack of finances.

Disadvantages of managed funds

While managed funds can provide some benefits, there are also some disadvantages:

  • Below average returns. Depending on the fund you're with you could be paying management fees for below market performance. This can be amplified if you get hit with the double whammy of both high fees and poor performance.
  • Investors flock to the fads. Like with shares, there's a likelihood of chasing last year's fad or a particular fund which has outperformed. This might not be beneficial if the trend fails to outperform in the next year.
  • Fees and tax concerns. Investors can find themselves paying more fees and end up with unknown tax issues, which they are unaware of.

Are managed funds a good idea for beginners?

Managed funds can be a great way for new investors to get into the market due to the relatively low cost and ease of access to a market.

Remember the main advantage to a managed fund is that it's professionally managed, meaning you gain access to professional knowledge and insights of markets.

Managed funds frequently asked questions

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