Managed funds explained: How they work and why they matter

Managed funds are one of the most accessible investment options available in Australia.

They’re commonly used by superannuation funds and everyday investors alike to diversify portfolios, access new markets, and benefit from professional management. But what are managed funds, and how do they work?

How managed funds work

When you invest in a managed fund, your money is pooled with funds from other investors. In return, you’re allocated a number of “units” based on how much you contribute and the current unit price.

For example:

• You invest $5,000
• The unit price is $1
• You receive 5,000 units

If the unit price increases to $2, your investment is worth $10,000. If it falls to 90 cents, it’s worth $4,500.

Why investors choose managed funds

There are many reasons managed funds are a preferred investment vehicle:

• Diversification: Your investment is spread across multiple asset types – such as shares, property, bonds, or cash – helping to manage risk.
• Market access: Some global or niche markets may be difficult to access on your own. Managed funds provide easy entry via pooled investments.
• Tailored strategy: Choose from income-generating or growth-focused funds depending on your financial goals.
• Professional management: Experienced fund managers handle the selection of investments and monitor economic factors that could impact performance.
• Administrative ease: The fund manager handles the paperwork and day-to-day administration so you can invest without hassle.

Understanding returns: income vs growth

Managed funds typically generate returns in two ways:

• Unit price growth – when the value of the fund’s assets increases, so does the unit price.
• Distribution income – earnings from dividends, interest, or capital gains are paid to you, usually quarterly or annually.

You can choose to have distributions paid to your bank account or automatically reinvested back into the fund.

Risks of managed funds

All investments carry risk – and managed funds are no exception.

• Funds that focus on shares and property (growth assets) offer the potential for higher returns but may be more volatile in the short term.
• More conservative funds (e.g. fixed interest, mortgages, or cash) tend to be more stable but deliver lower returns.

Diversification helps balance these risks by spreading your money across a variety of assets.

Think long-term

Managed funds – especially those with a growth focus – are designed for long-term investors. Withdrawing early can lock in losses, particularly if markets are down.

Importantly, avoid choosing a fund based solely on past performance. A strong history is useful to consider, but no guarantee of future results. The fund’s strategy and the experience of its managers play a major role in future outcomes.

Need help choosing a fund?

We can help you evaluate your goals, timeframe, and risk tolerance to select the right managed fund for your situation – and give you confidence in your investment strategy.