Thanks to Kiwisaver, there is an increased awareness of the benefits of investing in a managed fund. Managed funds are where your money is pooled with other investors’ and spread across a range of different investments, with each investor effectively owning a portion of the total fund. They’re typically managed by a professional fund manager, who makes all the investment decisions, providing a cost-effective way for investors to gain exposure to investments they may lack the knowledge or resources to access otherwise. Managed funds can either be listed investments, such as those publicly listed on the NZX, or unlisted, meaning they’re not directly traded on a stock exchange.
This can be a great way to help spread the risk of your investment portfolio, through diversification across a range of different investments. Each fund will have varying levels of risk involved, as well as a particular focus, be it on a type of investment, market, or responsibility. Impact investment funds, for example, focus on social and environmentally responsible investments that generate both positive social and financial returns.
Portfolio Investment Entities (PIE) are a type of New Zealand managed fund with special lower tax rates, introduced to incentivise investments in managed funds. The tax you pay on your investment will be based on your prescribed investor rate (PIR), which is calculated using your taxable income over the last two years. It can be anywhere between 10.5% and 28% but is usually slightly lower than your usual income tax rate.
Exchange Traded Funds (ETFs) are simply funds where you can buy and sell investments on a stock exchange, like you can with shares, offering a simple way to gain exposure to a range of different investments, with flexibility and low fees. Catalist has been designed as a cost-effective stock exchange to list small to medium-sized ETFs. We will work with fund providers to give investors access to a broader range of investment opportunities.
A listed managed fund can be a great way to diversify your investment strategy and is increasingly appealing in a low interest rate environment. Investors should, of course, do their due diligence and read the information provided about any managed fund before investing. Consider the performance track record, but remember past performance doesn’t guarantee future performance. Consider the fund’s strategies or management style, including any restrictions that may limit investment types and weightings. Also have a look at the fees, including any entry/exit fees, ongoing management fees, trustee fees, and any intermediary fees. In finance, the more you pay does not necessarily mean the more you get, so a rule of thumb, when choosing a managed fund, work on keeping fees as low as possible.
If you’re interested in expanding your investment portfolio to include managed funds, sign up for a Catalist investor account and opt in to our newsletter. We’ll keep you up to date with any new investment opportunities and managed fund listings.
By Michelle Polglase