What's wrong with managed funds?

TL;DR

Managed funds have benefits such as diversification and accessibility, but they also come with drawbacks including tax implications, high turnover of assets, and the potential for frozen funds.

Transcript

g'day and welcome to this week's video this week we're gonna have a look at what's wrong with manage funds I'll also cover off on what's right with them as well so don't be too negative if you get some value out of our videos please subscribe to the channel and please share the video and a family of friends and down in this description below there'... Read More

Key Insights

• 👶 The unit trust structure of managed funds is scalable and beneficial for banks, fund managers, and institutions, but it can have tax implications for new investors.
• ✋ High turnover of assets in managed funds can result in tax consequences that are not individually tailored to investors.
• 🤱 Fees have a guaranteed impact on net returns, making it important to consider and reduce them when possible.
• 🤑 Managed funds can be subject to freezing in extreme circumstances, limiting investors' access to their money.

Questions & Answers

Q: What are some issues with managed funds?

Some drawbacks of managed funds include potential tax consequences for new investors, high turnover of assets leading to tax implications, fees impacting net returns, and the risk of funds being frozen during extreme circumstances like the GFC.

Q: How do managed funds affect tax liabilities?

New investors in managed funds may face tax bills or increased income distributions, as unrealized capital gains within the fund structure are realized when they join. This can result in higher tax payments and impact their overall tax liability.

Q: What impact do fees have on managed funds?

Fees can significantly affect the net return of managed funds. While returns can't be guaranteed, reducing fees each year is a guaranteed way to improve overall investment performance.

Q: Why can managed funds be frozen?

Managed funds have a clause in their trust structure that allows them to be frozen in extreme circumstances. This is done to prevent a run on the fund and preserve the fund's value during times of financial stress.

Summary & Key Takeaways

• Managed funds are a popular investment option because they offer diversification and accessibility to a wide variety of companies and asset classes.

• However, new investors coming into existing funds may face tax consequences due to unrealized capital gains within the fund structure.

• Fund managers' high turnover of assets can also result in tax implications for investors, and fees can have a significant impact on net returns.

• Additionally, there is a risk of funds being frozen, as seen during the Global Financial Crisis (GFC), which can prevent investors from withdrawing their money.