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Benefits and risks of investing in mFund

mFund is a popular and relatively easy way for individuals to invest in managed funds. Investing in managed funds carries risks to consider

Benefits of using mFund

mFund is a popular and relatively easy way for individuals to invest in managed funds. One transaction can give you diversification across different asset classes and market sectors and access to investments that may otherwise be out of reach.

Managed funds can help you diversify your portfolio across asset classes, sectors and geographies that otherwise could be difficult to access. There are managed funds that cover international shares, emerging markets, specific sectors, corporate bonds, government and semi-government bonds and commodities.

For example, if your portfolio is comprised primarily of Australian shares, you can easily diversify your portfolio by adding an mFund that covers international shares.

Expert investment management aims to deliver a better performance than the market. Investing in a managed fund gives you exposure to the wider range of styles and strategies used by professional managers – including investment capabilities from around the world. You can also access investments where it is difficult for individual investors to gain research insights, such as small caps and emerging markets.

Managed funds will change in value as the underlying assets change in value. Depending on the type of fund, the underlying assets and the investment objective of the manager, investors can earn returns through price growth and/or distributions.

By combining all of your investments in one place on your CHESS HIN, you can have an efficient, cost-effective and transparent experience. This also means it is easier for you to see the value of an entire investment portfolio and can make end of year administration easier when using software tools.

Applying for units directly in an unlisted managed fund typically requires you to fill out complex application forms and provide identification documents. Investing via mFund bypasses paper forms as you are applying through your established broker relationship. SMSFs and other entities particularly value the ability to invest without completing complex forms. Each time you want to transact, it is as easy as contacting your broker. Settlement occurs efficiently through CHESS, ASX's world-leading settlement system. 

When you invest in an unlisted managed fund, you always buy and sell at net asset value (NAV) less a buy/sell spread, even if you don’t know what that NAV is when you transact. This is because unlisted funds use forward pricing to value their funds at the end of the day. There is no premium or discount.

Risks of using mFund

You should keep the following risks in mind when considering investing in mFund. These risks are the same as investing in managed funds in general. These include currency risk, gearing risk, short-selling risk and emerging market risk.

While investing in managed funds provides access to different asset classes and industry sectors, there is always a risk that the managed fund investments may underperform or decline in value. This will affect your return.

Risk that a government or a regulator may introduce regulatory or tax changes which can affect the value of securities in which the managed fund invests, the value of the managed fund units or the tax treatment of the managed fund.

Certain countries or regions may be subject to additional degrees of market volatility, economic and political instability. This may reduce or preclude the ability to trade securities or negatively impact a security’s value.

Currency risk is a consideration when investing globally. A declining Australian dollar will increase the value of investments held in non-Australian dollars. On the other hand, if the Australian dollar rises, the value of investments held in non-Australian dollars will fall; all other factors being equal.

The taxation of managed funds is different to shares. A distribution from a managed fund represents your share of the income earned by the fund, which must be reported as income on your tax assessment. Taxation treatment may vary between asset classes. You should consult your taxation adviser for advice that takes into account your own financial circumstances.

Managed funds that use derivatives are subject to particular risks. Some managed funds for example may use some types of over the counter (OTC) derivatives that are not subject to central counterparty clearing arrangements and therefore have a higher exposure to counterparty risk.

Some managed funds may also carry additional risks, depending on the strategy they use or the assets they invest in. For example, some managed funds may use borrowing or leverage, which may increase risk. To understand fund-specific risks, read the product disclosure statement and seek independent advice from a professional adviser before investing.

 

Invest carefully

You should carefully examine the investment strategy, asset allocation and the manager’s track record before investing. While ASX facilitates access to mFunds through the mFund Settlement Service, it is not the provider of mFund products and offers no guarantee over their performance. You must be given the product disclosure statement associated with each mFund product and make your own investment decisions. You should also seek professional financial advice.