What’s the difference between managed funds and shares?

When you invest in shares, each share you own represents a portion of ownership of a company. That means the more shares you own, the larger the direct ownership of the business you have.
 

When investing in a managed fund, however, your money is pooled along with that of other investors and used to invest in either a single asset fund or across a range of asset classes all within the one fund (usually known as a diversified fund).
 

With a managed fund, rather than buying shares in a business you’re buying units in a fund that’s managed by a professional fund manager who is responsible for investment decisions. In other words, someone else is deciding what investments to buy and sell and when the right time is to do it. This might be an option if you’re not confident with making your own investment decisions.
 

When it comes to deciding about whether to invest in shares or managed funds there are a number of different considerations to weigh up. The following are some of the key factors to keep in mind when deciding which option is right for you.

Diversification

In order to have a diversified share portfolio, you’d need to invest in a range of different industries, both within Australia and internationally. This is likely to require a significant capital outlay. With a managed fund, however, it’s possible to get exposure across and within a wide range of asset classes all in the one fund.

Transparency

When you own shares or units in an exchange traded fund, finding out the latest share or unit price is as easy as signing into your online trading platform; you can also typically buy and sell them within market hours. Unlisted managed funds however usually have their value recalculated on each business day and rather than finding a buyer through the share market, you either transfer your units off-market or withdraw your investment (though some restrictions or limitations may apply). This can potentially take days or weeks to process.

Deciding what to invest in

With a managed fund, all investment decisions about what to invest in, including when to buy and sell are made by the fund manager (though you’ll still need to decide which fund or funds to invest in). When buying shares however, you’ll be responsible for deciding what companies to invest in.
 

You may be more comfortable having a professional make investment decisions on your behalf, in which case a managed fund is likely to be the way to go. If having more control over where your money is specifically invested is a deciding factor though, investing in shares would likely be a better option.

Costs

There are brokerage costs that’ll need to be paid when either buying or selling shares.
 

Fees for managed funds vary depending on the fund, but there are generally both ongoing management fees and administration charges that will need to be paid. It’s important to read the Product Disclosure Statement for details on fees and charges before deciding to invest in a particular fund.

Administration and paperwork

When you own shares, you’ll usually receive statements twice a year for every company you have shares in. That means if you have a portfolio of 10 different shares, you’ll get 20 statements a year you’ll need to file. With a managed fund, however, you’ll usually have just the one statement, reducing your paperwork and potentially making tax time easier.

How about investing in both shares and managed funds?

As already mentioned, it’s normal for a well-balanced portfolio to include both shares and managed funds. As managed funds can offer a high degree of diversification within the one fund, one possible option may be to think of the managed fund as the core of your portfolio, with shares being a satellite. Should there be a particular investment area you’d like more exposure to (perhaps financial companies or tech companies, for example) you could consider increasing your exposure by buying shares in companies in those fields.