A managed fund is a professionally managed investment portfolio. The managed fund is a type of unit trust with the trust owning the underlying assets. Individual investors receive ‘units’ in the trust proportional to the funds contributed.
The fund manager will choose a portfolio of investments based on their objective for the fund. The objectives or aim of a fund will generally dictate the asset allocation (the portion of assets selection from cash, fixed interest, shares, and property) and the style of the fund manager (active or index).
Some managed funds operate as multi-manager funds – where they hold a portfolio of other managed funds rather than a portfolio of direct assets. Multi-manager funds offer asset diversification as well as investment manager diversification.
Managed funds can be useful for investors as they offer professional management, diversification and access to a wide range of assets including wholesale assets which are not generally available to retail investors.
As the trust is the owner of the underlying assets any tax benefits (such as franking credits) and liabilities (CGT) are applied to the trust itself and not managed individually. This can be significant for new investors as there is no way to know if they are inheriting embedded tax liabilities for gains they did not receive.