Learn more about actively managed funds & how they work

Are you planning to invest some of your hard-earned money? Perhaps you’re saving for a holiday? Or, maybe you’re working towards a comfortable retirement? Well, you’ve probably heard about managed funds. At the same time, though, you may have a few questions about just how they work.

What are managed funds?
With managed funds, individuals pool their money and receive units that increase or decrease in value along with the value of the fund’s assets (often shares or bonds). It’s important to note that whether units go up or down in worth, the quantity never changes. For example, if on day one you buy 100 units for $100, you will always have 100 units, regardless of how their value fluctuates.

What is the difference between active and passive funds?
Managed funds can be active or passive. This article is about active funds where a manager makes decisions about how to invest. In contrast, a passive fund follows the market index, and there is no manager to make day-to-day investment decisions.

What is your appetite for risk?
Typically, the more time you’ve got to reach your investment goal, the more risk you could take. Over time, higher-risk investments, like growth funds, should provide greater returns, but they are likely to have more ups and downs. So, if you have less time and need more certainty, funds that invest mostly in bonds and cash, with low risk and a lower return, might be best. For example, if you have 20 years before you plan to retire, a higher risk growth fund with a likely higher return might be best — you’ll have time to ride out ebbs and flows in the value of your investment. Conversely, if you plan to buy a new car in two years’ time, a low-risk, low-return fund could be more suitable.

With GoalsGetter, you can set goals and view a projection of your planned investment to see how different fund types that carry different levels of risk may perform, and impact your end balance. Give it a go now!

Why join a managed fund?
As their names suggest, there are 50 stocks in the NZX50 and 200 in the ASX200. And, when you look at investing in companies overseas, the investing world becomes a huge place.

Should you 'DIY' or engage the experts to do it for you? To answer this question, ask yourself:

• Do you have the time, knowledge and skills to research and get to know companies intimately to determine where you should or shouldn’t invest?
• If you do have the knowledge and time, do you have the connections to trade effectively every day?
• Are you able to transact in multiple countries around the world?
• Do you have enough money to invest to diversify properly? A single stock or bond may have a minimum purchase value of a few thousand dollars.
• Are you knowledgeable about reporting and tax?

• Fees: You pay a management fee for the work that the fund manager does. This will vary, usually between 0.5% to 2.5% per year, depending on the complexity of the product and type of assets, and is calculated daily based on the value of your assets. Typically, fees for higher-risk or bespoke funds are higher than more 'vanilla' options, like bonds or cash.
• Expenses: These cover the general costs of running the structure of a fund, such as unit pricing and trustee, custody, audit and legal fees. Some are fixed, and if you're in a small fund, they might be high. Conversely, if your fund is large, the expenses can almost get lost in the rounding.