Q I recently received an e-mail advertising access to unlisted Managed Funds via the ASX. These funds are called mFunds. What are they and how do they differ from conventional Managed Funds.
A An mFund is an unlisted Managed Fund available to investors via the ASX. The ASX launched its new mFund settlement service on 8 May 2014.
There is a major difference between Listed and Unlisted Managed Funds. Listed Managed funds trade on the ASX. The parties to the trade are two investors with the price determined by the investors as buyers and the sellers. Unlisted Managed funds are different, the trade is between the investor and the unit registry of the issuer fund. The unit price is determined by the underlying value of the assets of the fund at the date of trade. With mFunds, the ASX acts as the settlement service for the transaction with the investor and the fund.
The major attraction to mFunds are that investors can buy and sell unlisted Managed funds online and without the complexity and administration of paper based forms. Investors are still required to acknowledge that they have received the Product Disclosure Statement for the specific fund. An investor will place an order for a fund and then be notified that units will be issued based on the valuation price at the close of business for that day. The same applies for sell orders. Buys and sells are settled via the CHESS system on the same basis as shares or ETFs.
According to the ASX there are approximately 50 Managed Funds currently available to trade so in comparison to the wider Managed Funds industry it is very early days for the service. There are 5 brokers offering the service at this time with another six on the way. COMSEC, the largest broker in the market is not offering the service.
Time will tell how successful mFunds prove to be. The key determinants of future success will be the accessibility to quality Managed Funds and the willingness of Stockbrokers to facilitate the trades.
In time it is likely that investors and Financial Planners looking to invest in Managed Funds will be attracted to this service at the expense of conventional avenues such as Platforms and Masterfunds.