When it comes to investing, it is important to diversify your portfolio. Putting all your money into only one type of financial product is risky because if that investment devalues, so will your entire portfolio. However, by spreading your funds around into different investment opportunities, you mitigate your risk of loss and increase your possibilities of overall growth. One such device for diversifying your investments are managed funds, which are also known as collective investment schemes.
How Managed Funds Work
Managed funds are investments that contain a variety of securities that tends to target a specific industry. The managed fund have a “pool” of investment (which are things like bonds, debentures, notes, options, and stocks) in order to abate the potential defaults associated with the risks associated with investments. Like any other type of portfolio building strategy, there are both advantages and disadvantages associated with investing in managed funds.
Managed Fund Advantages
- Reduced capital risk
- Diversity in investment instruments
- Easy for novices to get involved
- Convenience
- Professionally managed
- Minimum investment required can be as low as $1000
- Fairly liquid assets
Disadvantages of Managed Funds
- There are many fees associated with investing
- The fund manager (not the investor) owns the rights of the direct benefits of owning a company (such as discounts on the company’s products or invitations to stock meetings)
- Performance is not guaranteed
When taking the time to build a financial nest egg, managed funds can help play a significant part of that goal. There are hundreds of varieties of managed funds to choose from, thus, can be overwhelming for investors. However, before investing into a managed fund it is important to thoroughly research your selection. The fund manager should be able to provide you with a prospectus, which will provide you with all the information you need for weighing your decision.