Managed Fund

A managed fund is a pool of money from many investors, run by a professional manager. You buy it directly from the fund company rather than on a market. You apply, and your money buys units at the unit price calculated at the end of that day. You redeem the same way: an application or redemption form, not a trading screen. There is no exchange price, no intraday market and no brokerage - the pricing happens once a day, at the fund's net asset value.

The structure is the Australian default for professionally managed money, and the fees are the reason it is under pressure from index funds. Active managed funds charge roughly 0.8 to 1.5 percent a year, plus entry or exit fees on some products. MoneySmart's guidance treats the fee schedule as the first thing to read. The liquidity is the second catch: redemptions take days, not seconds, and the price you get is the next unit price after the fund processes the form.

The mechanics run on the unit price. You apply with $10,000; the fund calculates the unit price at the end of the day - say $2.50 - and your money buys 4,000 units. The manager invests the pooled money across the portfolio, and the unit price moves daily with the value of the holdings. Every investor's units are priced identically; the pool is the product, and the unit is your slice of it.

The liquidity is the second mechanism, and the one the application form glosses over. Redemption is a form, not a sale: the fund processes it, and you receive the next calculated unit price - typically within a handful of business days. If the market falls 3 percent in that window, the redemption absorbs the fall: $50,000 redeemed into a 3 percent drop is roughly $1,500 less than the balance on the day the form was lodged. The liquidity entry covers the spectrum from T+2 to glacial.

The fees are the third mechanism. An active managed fund charging a 1.2 percent MER on a $50,000 holding takes $600 a year, deducted from the unit price before the performance is reported - and a 2 percent entry fee takes $1,000 off the top on the way in. The management expense ratio entry covers the drag, and the comparison that matters is after fees: the index fund alternative charges 0.04 to 0.15 percent for the same market exposure.

For an Australian reader, the managed fund is the product behind most "professional management" conversations, and the fee schedule is the first thing to read. MoneySmart's guidance on managed funds is blunt: check the fees, check whether performance is reported after fees, and understand that redemption takes days. The index fund and ETF alternative offers the same market exposure for a fraction of the fee, which is why the active version needs a reason.

A colleague named Brent (yes, that Brent) redeemed $50,000 from a managed fund to fund a renovation. He lodged the form on a Tuesday, and the fund processed it on the following Monday. The market fell 3 percent in the window, the redemption landed at roughly $1,500 less than the balance he calculated, and the renovation budget absorbed the difference. The highest-leverage thing most Australians can do is read the fee schedule and the redemption terms before applying. The index fund entry covers the alternative that trades in seconds.