Investing in managed funds

I'm 25 and want to build up an exposure to the share market with share prices down at these low levels. I must admit I don't know much about shares and a friend of mine said I should look at investing in managed funds. I'm not sure about these and I wondering if you could fill me in?

The term covers everything from an investment fund or trust to a super fund to a property trust, etc. Generally someone like you would look at a fund that buys shares, but some funds will mix up the portfolio between shares - local and overseas - property trusts and cash, which are really interest bearing deposits of some kind.

The term 'managed' is used because there is a manager or management team that does the share picking or asset picking for you. When you invest your money into a fund, you receive units and it means you're a part-owner of the fund, something like a shareholder of a company.

If a unit is priced at $2 and you're investing $20,000 you would get 10,000 units. As the shares or other assets of the fund grow in value, the value of the unit increases and vice versa. Listed unit trusts or funds are said to be 'closed', meaning there is a fixed amount of units available. These units can also be traded on the stock exchange and are priced on the stock market. Unlisted trusts or funds value their units daily or, at worst, weekly, so you can see how your investment is doing. The selling and buying price of a unit reflects costs, taxes and fees for the fund manager. This is all determined and conducted by the fund manager when the fund is unlisted but the Australian Securities and Investments Commission (ASIC) has rules they must abide by. Be careful of the fees - entry, exit and ongoing. Make sure you know these and compare the fund's long-term record. Morningstar is a website that looks at these returns and fees.

At the end of the financial year, the fund could pay you an income distribution that will have to be included on your tax return, but that's not the only money you can make. The units can also increase in value, but you don't have a tax issue on this gain until you sell them, just like shares.

Do some homework and you will find there are some great funds that have great track records, but be careful that they don't overcharge you. Good luck.

Click here to visit Peter Switzer's website

Investing in managed funds

ALSO ON YAHOO!7: