COMMON QUESTIONS What is a managed fund?
What is fund performance?
How is performance calculated?
Why do published performance returns sometimes vary from my individual returns?
Why should I consolidate my super?
Why is chasing returns by switching too often a mistake?
What is a managed fund?Managed investments, also known as managed funds or unit trusts, allow you to pool your money with that of many other investors so that you can buy a wide range of investments managed by a professional team. Because of its size, a managed investment lets you invest in assets that may not ordinarily be available to individuals - like global companies, overseas government bonds or office towers. Getting started in managed investments
Getting started in a managed investment is easy - and you don't need to have a large sum of money! Essentially there are two ways you can invest in a managed investment: - you can invest a lump sum of $5,000 and leave it to accumulate, adding amounts whenever you are able to invest; or
- you can invest a lump sum of $1,000 and an amount on a monthly basis (often as small as $100 a month).
What is fund performance?Managed investments deliver two types of investment return: unit price growth and distributions. Unit price growth is the increase, over time, in the price of your units. When the investments in the fund generate income such as interest or realised capital gains, this is paid out via regular distribution. The performance of your fund includes the growth of the unit price and the value added to your investment by re-investing all distributions. It is normally shown as a percentage over a specific period of time. How is performance calculated?Investment performance for general investment products is calculated in accordance with industry guidelines. These guidelines allow the following commonly used method of performance calculation: - the calculation uses the withdrawal value of an investment at the beginning and the end of a stated period,
- where funds distribute income, it is assumed to be reinvested,
- entry fees are not included,
- management fees are included (but any dollar charges made to your account are not included),
- any additional amounts you invest are not included (except for reinvested distributions),
- no allowance is made for tax.
Why do published performance returns sometimes vary from my individual returns?The performance figures that are published will often not exactly match your own investment's return. Some reasons for this include: - fund performance is calculated by comparing the withdrawal value of an investment at the beginning and end of a standard period such as a quarter. As prices change daily, the performance of your investment will obviously be affected by the exact dates on which you invest and withdraw.
- entry fees are not applied when calculating performance, as these fees can differ from investor to investor and fund to fund.
- where funds distribute income, it is assumed to be reinvested. If you are not reinvesting distributions, you will have a different result.
- quarterly returns published by some surveys are based on the unit prices at the last day of each quarter (e.g. June quarter returns use prices at 31 March and 30 June). Returns we quote are based on the unit prices at the first day of each quarter (e.g. June quarter returns use prices at 1 April and 1 July). This concept also applies to returns over other periods (e.g. monthly, yearly etc).
Why should I consolidate my super?On average, Australians change jobs every five to six years1. So over your whole working life you could have six or more different superannuation accounts. Many people are pleasantly surprised when they add up their total super from all their different jobs, and realise that this is a significant amount of money that's worth looking after. The easiest way to look after your super is to consolidate it into one place. Advantages of consolidating your super - Reduce your paperwork, and your fees!
If you have more than one super fund, each fund will send you statements and other information on a regular basis - this adds up to a mountain of paperwork every year. You may also be paying multiplesets of fees. Consolidating your super into one account means that you will only be charged one set of fees, and it may also help save a few trees by reducing the paper shuffle. - Maximise your earnings
With your super money in different funds, your investment strategy may not be effective. Without a clear investment strategy you may not be getting the earnings you need to accelerate your super. Consolidating your super allows you to have a more focused investment strategy which can lead to a better return. - Use it or lose it - lost super money
Many of us have money sitting in super funds from jobs we left years ago. If your old employer loses track of you, your money can eventually end up in Government coffers. Indeed, Government statistics suggest there is more than $6 billion worth of "lost" super2. Perhaps some of it is yours!
Why is chasing returns by switching too often a mistake?Investing in the fund that had the best performance last year may be a big mistake! It is unlikely that the same asset class will have the best performance for two years running. It has only happened twice in the last 20 years. So if you invest in the asset that performed the best last year, it is unlikely to have the best performance again this year. 1Australian Bureau of Statistics: Labour Mobility Statistics: February 1999
2Statistics as at Oct 2002
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