What is Managed/Mutual Fund
Managed Fund is also known as mutual fund in many countries. Literally managed fund is an investment product which is a collection of stocks that could range from few stocks to few hundred stocks in one managed fund which is monitored and operated by a fund manager. Managed fund could be categorized into different types like tax effective fund, growth fund, small cap fund, large cap fund, blue chip fund, index fund, bond fund, property trust fund, ethical investment fund, international equity fund, and the list can go on and on. Managed funds are operated by either by major banks or investment companies who generally also have stock broker license, and trade stocks through their own seat in respective stock exchange.

Understanding Managed Fund Bit More Closely
Managed fund operation has become so lucrative that in countries like USA and Australia, the number of managed fund is more that the number of companies listed on the stock exchange. Although a person with small amount say $1000 can get an opportunity to invest in top 30, or top 100 companies in several categories, however managed fund comes at a price. Managed fund company or so call operators can charge the investor generally between 0.5% to 4% annually for managing their investment. Also depending on which managed fund you have invested, investor could pay as high as 4% upfront entry fees which is deducted from your investment amount. Investor may also be charged an exit fee of up to 3% when they want to dispose their and cash their investment in the market. Entry fee is charged when you initially invest into the fund. Exit fee is charged when you sell and cash your investment in the managed fund.

Advantages of Investing through Managed Fund

• Managed fund could a good investment product for people with small amount of money say, under $10,000 as the investor can get exposure to large number of companies stock for even $1000. However be aware that some managed fund's minimum investment amount could be $25,000, $50,000 or even $100,000

• Managed fund could be an ideal choice for people those who don't have the time or the expertise to monitor the performance of their investment frequently, as the fund manager monitor the fund and sells or buy stocks in order to maximize the performance of the fund.

• As the managed fund could have a wide number of stocks, the inherited risk of loosing the money in long term is lowered.

• Managed fund generally many not have very aggressive growth, but over the long term might have moderate returns with adequate margin of safety.

• If you research enough in your own country, you may be able to find a “Performance based Managed Fund” who charges your annual fee only if their fund has performed positively in that year. Some managed fund also have a benchmark of say above 30% growth in a single year will be charged at extra 2% or something. This type of managed fund's manager definitely keeps working hard for additional incentives, but ultimately passes on the cost of performance to the investors.

• Access to international market like emerging market of India, South America and China sometimes can only be accessed through international equity fund.

• Buying power of the fund could be positively leveraged to buy into investments like commercial property fund that may not be possible for small investors on their own.

Disadvantages of Investing through Managed Fund

• Managed fund return could be adversely affected by the annual fee (between 0.5% to 4% annually ) that is a certain percentage of total amount of money invested, can be be substantial.

• For now, lets say that you have $80,000 invested in managed fund that charges 3% annual fees. This mean you will have to part away with $2400 every year just to keep yourself invest in a managed fund. This hypothetically means that that your $80,000 can become $0 in 33.33 years if the fund has 0% growth for those many years.

• It costs a lot of money to allow other people to manage your managed fund investment, besides that the investment comes with no guarantee of performance or the capital itselfwhich indeed makes investor feel powerless at times.

• In rare case the fund could be closed, and investors may loose their investment partially or completely. Although, this is rare, but is possible.

• Managed fund investors have no control over the fund manager's day to day decisions, which means that if you are a passive investor, and if you have skills and expertise to manage your investments on your own, then it is certainly better to invest in the stock market and other asset classes directly.

Tips for Choosing the Managed Fund that is Just Right For You

• Decide your investment amount & time frame for how long you want to be invested in the managed fund.

• Choose the type of managed fund you want to invest and believe that it has growth potential like resource fund, Australian shares fund, cash fund, mortgage fund, small company fund, large company fund, industrial fund, wholesale fund, emerging market fund, imputation fund, blue chip fund, geared equity fund, concentrated fund, multi-blend fund, value growth fund, income fund, listed property fund.

• Order the fund prospectus you have shortlisted based on their 5years performance (less than 5 years performance may not be a good idea, as a fund with no historical record is deemed of having high risk).

• Evaluate the ongoing annual fee, entry and exit fee verses the last 5 years performance of each individual fund to choose the most cost effective and high growth managed funds.

• Note : Managed fund with Low ongoing annual fee, and zero entry and exit fees should be paid careful attention, and their historical growth should be scrutinized to come up with best funds most suitable for investment. Generally, if initial investment amount in a aprticular fund is higher than $20,000 the annual management fee generally is lower like 0.9% or even more lower with fund with initial minimum investment fo $100,000. So your goal should be leveraging your initial investment amount to fing highest growth managed fund with lowest ongong fee and possibly $0 entry and exit fee.

• Read the prospectus to evaluate the risks associated with each fund and ask yourself which risks are the ones with which you can live with, and sleep over every night.

• Note : I know that reading those investment fund prospectus that highlights its growth potential in large fonts and downplays their risks by using smallest font size possible for explaining you the risks associated with the invest. But, you will be much better off, if you have invested time in reading the risks of the investment and then make a informed decision.

Once you have decided, invest into the managed fund of your choice.

HAPPY MANAGED FUND INVESTING!

Keshav Jha