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Guide To Managed Funds

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Money from individual investors is pooled and invested by a fund manager.

Superannuation schemes, unit trusts, group investment funds (GIFs) and some life insurance are managed funds. If you join KiwiSaver you will be investing in a managed fund.

When you put your money into a managed fund the investment decisions
are made for you by the fund manager. Because there is a large pool of
money to invest the manager can usually get better deals than any one
person.

The fund manager puts investors' money into a range of investments,
such as shares, debt securities and property, both in New Zealand and
overseas. This means that when you invest in a managed fund you spread
your money over a range of different types of investments and different
countries. The types of investments the manager can choose are set by
the particular fund's trust deed.

You can pick a managed fund with lower, medium, or higher risk depending on the level of risk that suits you. Read more about risk and your risk profile.

You pay fees when you invest in a managed fund. Different funds
charge different fees and they can be quite complicated. For example,
there may be an initial fee when you first invest in a fund, an annual management fee, and an exit fee when you cash in your investment. Some managed funds also charge separate administration fees.

Ask what fees you will be charged before you sign up to invest and
before you pay any money. An investment adviser should be able to help
you compare the fees charged by different funds.

Types of managed funds
Unit trusts, group investment funds (GIFs) and superannuation schemes are the main types of managed funds.

When you invest in a unit trust or a GIF you buy "units" which
represent a share of all the assets owned by the fund. As well as the
fund manager, the fund will have a trustee to look after the assets for
investors.

For GIFs the trustee may also manage the fund, or it may be
externally managed. The value of your units in a unit trust or GIF will
go up or down as the value of the fund's investments changes.

Some managed funds are listed on NZX or overseas stock exchanges. You can buy and sell units in these funds.

If you have units in a managed fund that is not listed on a stock
exchange you can usually sell them back to the manager. However, you
should check whether there are any restrictions on this.

Superannuation schemes are specifically designed for people who want
to invest to provide for their retirement. Investments in these schemes
are often locked in until you retire. KiwiSaver schemes are
superannuation schemes. You can find out more about superannuation, and
KiwiSaver, at www.sorted.org.nz

Can I get my money back?

If a managed fund is listed on the stock exchange you can sell your units in the same way as you can sell shares.

With most other managed funds you can get your money out by selling your units back to the manager of the fund, but there may be some restrictions on this. The amount you get will depend on the value of the units at the time. There may be a fee to pay.

Investments in superannuation funds are often locked in until you retire. If this is the case you usually can't get your money out early.

This article was provided by the Securities Commission.

See also:

Guide to Fixed Interest Securities

Guide to Shares

 

 

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