Instead of investing directly and doing it all ourselves, we can invest in a managed fund where our money is pooled with other investors’ money and spread across different kinds of investments. A fund manager chooses the investments, and each investor owns a portion of the total fund. The benefits Managed funds can be a great way for beginners to wade into the waters of investing, as it doesn’t take much to get started. Managed funds also make it easier to manage risk by spreading our investments across a range of assets and products. KiwiSaver is a good example. With a managed fund our money is spread across more investments than it would be if we bought an investment such as a share or property directly.
Managed funds may have a general focus and be described as defensive, conservative, balanced, growth or aggressive funds. Or they can be focused on a particular type of investment or market such as shares, commodities, or emerging markets. It’s a good idea to choose the kind of assets or markets we want to invest in first and then find a suitable fund manager that specialises in that type of fund. When we invest in KiwiSaver, we’re putting our savings into a type of managed fund
Managed fund prices will often rise in value over time, giving investors a capital gain. There is a risk that the price of a fund can drop below what we paid for it. The risk of losing all our investment can be smaller than if we personally invested in shares in one company, because our money in the fund is spread across many different assets and organisations. There is also a risk that the various management and administration fees charged by a fund will reduce our returns. Fees can vary greatly between different fund managers and between different types of funds. There’s more on the Financial Markets Authority website about fees and how to protect ourselves when investing in managed funds.