A managed fund is exactly that - an investment fund that
is managed professionally by an expert fund manager who invests in a variety of
investments. The actual type and mix of investments within the fund depends on a
predetermined mandate communicated by the Fund Manager.
With managed funds, your money is pooled together with that of other investors to create a
single strong fund that provides significant investor benefits,
which includes an instant increase in buying strength.
Currently New Zealanders have over $68 billion invested in managed funds. $26
billion of this is invested in retail funds.
Types of Managed Funds
There are four main types of managed funds:
There is a number of legal, tax and ownership differences between these four main
types managed funds. The one that is most suited to your requirements will depend on your
current financial and tax situation and also your predetermined objectives. Below provides
a brief summary of each fund category.
A unit trust works by pooling money from a
number of investors and then using this money to buy a variety of investments. It gives
you greater buying power, allows you to share costs and gives you the benefits of
When you invest, you buy 'units' - and the
cost of each unit is the 'unit price'. The unit price moves up and down to reflect the
value of the investments in the fund. Many income funds' unit prices stay at $1 as profits
or income is distributed.
Unit trusts are one of the world's fastest
growing investment types.
They are governed by the Unit Trusts Act
1960, which protects the interests of unit holders. A Unit Trust is
constituted by a Trust Deed, a formal document setting out the rules by which the Trust
here for detailed information on Unit Trusts
Group Investment Funds (GIFs)
A group investment fund is also an
investment where individuals pool their money together to create greater buying power,
cost sharing and take advantage of professional management.
In most cases they are compared
directly with Unit Trusts. However there are differences.
While Unit Trusts require a separate
Trustee Corporation that is independent from the Manager to be the trustee for the fund.
However with GIFs, the trustee and the manager are one in the same.
The more conservative nature of many
Trustee Corporation clients has meant that GIFs have traditionally been biased toward
fixed interest and mortgage security type investments. This can be compared with a wide
array of equity investments offered by Unit Trusts. However, the Trustee Amendment Act has
given GIFs more scope and there is an increasing range of investments available through
the GIF structure.
Generally GIFs aim to provide both
growth in unit value and to distribute some income to investors.
Along with Unit Trusts, Superannuation
Funds are the largest and most popular type of managed investment in New Zealand.
With the realisation that people can no
longer rely on the Government for the provision of retirement income, many more investors
are turning to investment schemes that assist them in saving for their requirement.
Investors in superannuation Funds usually
set or have set for them a date at which their investment matures. This is usually a
nominated retirement date or is based on the unit holder's age.
Most Superannuation Funds either require
or give the option to have a proportion or all invested funds locked in until maturity.
Normally these locked funds can only be accessed under special conditions such as death,
disability, redundancy or when the fund reaches maturity.
Superannuation Funds tend to be focussed
more toward conservative investments. The large majority of funds available are cash,
fixed interest and conservative balanced funds.
Many Superannuation Funds offer fund
options that contain assurances that the investment value will never fall. These funds
therefore tend to be for very risk averse investors.
"Insurance Bond " is the expression
used to describe the range of investment-linked policies offered by several life insurance
companies. Whilst technically they may be life insurance policies, insurance are more
appropriately regarded as managed investments that possess the flexibility of unit trusts
but are taxed differently by reason of their insurance status.
If the bondholder dies, his or her investment
and any earnings are returned to the estate tax free, less any charges. A small portion of
an investors funds is generally used to pay for a small amount of attached term insurance.
The functioning of insurance bonds is very
similar to that of unit trusts. By purchasing insurance bonds, the bondholder gains
entitlement to units in a fund in proportion to their contribution. From this fund a range
of investments are purchased, including real estate, shares and interest bearing
securities and is professionally managed by a fund manager the same as a unit trust
The value of the bond reflects the underlying
value of the investment portfolio. The bond price will change in line with fluctuations in
the value of underlying investments.
The bonds are structured to provide capital
growth without any income returns. Income on investments accrues to the fund and is not
distributed, but reflects itself in the growth in the value of the units. The only way to
receive the benefit of this return is to redeem units.
of Managed Funds