What Is a Managed Fund? A Beginner's Guide for Australians

💼 So what exactly is a managed fund?🔗

🎯 The essential: You're not buying an asset directly, you're buying a proportional slice of a pool someone else manages on your behalf.

A managed fund is a type of "managed investment scheme" under Australian law, regulated under the Corporations Act. Instead of buying individual shares yourself, you and thousands of other investors pool your money together, and a professional fund manager invests that pool on everyone's behalf.

When you invest, you're issued units in the fund, each representing a proportional slice of the total pool. Grow the pool, your units are worth more, shrink it, they're worth less. The fund manager makes the calls on what to buy and sell, you hand over control in exchange for their expertise, and pay for it. Every retail fund must provide a Product Disclosure Statement (PDS) covering what it invests in, the fees, the risks and the tax implications, worth reading before committing.

The Australian managed funds industry is genuinely large. Total assets under management sat at roughly A$4.75 trillion as of the December 2023 quarter, the most recent figure from the Australian Bureau of Statistics before that particular data series was discontinued. This is not a niche corner of the market.

🏗️ How a managed fund actually works🔗

This is where managed funds differ from what most beginners picture when they think of investing. Most are unlisted, meaning you can't buy them through a brokerage app the way you would a share or ETF, you apply directly to the fund manager, or through a platform or wrap account.

Pricing happens once a day: the fund calculates its net asset value (NAV) at the end of each trading day, and that's the price per unit you'll get when you buy or sell, no live ticking price throughout the day. Minimum investments typically apply too, commonly $1,000 to $5,000, though some platforms allow less. When you want out, you submit a redemption request to the manager rather than selling to another investor on a market, and settlement can take several business days.

🆚 Managed fund vs ETF: the structural difference🔗

The short version: an ETF trades on a stock exchange like a share, a managed fund doesn't.

Both can hold the same underlying assets. The difference is the wrapper, and how you access it. For the fuller comparison between the unlisted-fund and ETF structures generally, see our index funds vs ETFs article.

🎯 Active vs passive managed funds🔗

🎯 The essential: Most active managers underperform their benchmark after fees over long periods, that's not opinion, it's a well-documented, repeated finding.

Not all managed funds are the same. Active managed funds employ a manager, or a team, actively picking investments to try to beat a benchmark like the ASX 200, making judgment calls on stocks, sectors and timing. Passive managed funds simply track an index, no stock-picking, no timing, aiming to match the index rather than beat it, structurally similar to an index ETF just in a different wrapper.

The vast majority of managed funds are active, and that's where the uncomfortable data comes in: research repeatedly shows most active managers underperform their benchmark after fees over long periods, not every manager, not every year, but most, over time. That doesn't make active funds worthless, it means "the manager had a great three-year run" isn't a good enough reason to pay more, look for consistency across a full market cycle, including the downturns, not just the good years.

💸 The fee story: what you're actually paying🔗

Fees are where managed funds often lose the argument against ETFs. Entry fees can range from 0% to 5% upfront, though many modern funds have dropped these. The management expense ratio (MER), the ongoing annual fee, averaged around 1.04% across Australian managed funds in 2024, down from 1.54% in 2014, a genuine 32% decline over the decade according to Morningstar data. Still meaningfully higher than most ETFs, which often sit below 0.30%. Performance fees, typically 10-20% of any outperformance, add further unpredictability, and small buy/sell spreads are built into the unit price on each transaction.

🤔 Who might still consider a managed fund🔗

Managed funds aren't obsolete. Some asset classes, unlisted property, private credit, infrastructure, certain niche international markets, aren't always available as ETFs, and a managed fund might be the only practical route to them. Investors who've genuinely researched a manager with a compelling long-term record across full market cycles, not just bull markets, may reasonably choose active management deliberately.

It's also worth knowing many super funds invest your money into managed funds under the hood as part of their diversified options, so there's a reasonable chance you already hold units in managed funds through super, even if you've never directly bought one yourself.

🔍 What to check before investing🔗

• Read the PDS, focusing on the investment objective, benchmark, fee table and liquidity terms.
• Check the total cost, some funds quote a base management fee but add performance fees and spreads on top, the PDS's "indirect cost ratio" gives the full picture.
• Look at performance across a full cycle, a fund that launched into a bull market tells you very little, look for how it handled genuine downturns.
• Understand the liquidity terms, most retail funds allow redemption within a few business days, some property or alternative funds have longer lock-ups.
• Know the tax treatment, distributions are taxed in your hands in the year paid, even if reinvested, a trap beginners often miss.

❓ Frequently asked questions🔗