Q. I would like to invest into shares either through an Exchange Traded Fund (ETFs) or a Managed Fund. Can you please explain the difference?
A. Managed funds involve pooling together money from many investors into one fund that is invested and controlled by a professional investment manager. You can invest in a single asset class such as International or Australian shares or a diversified fund, that blends a range of different asset classes.
When you invest in a managed fund, you are allocated a number of units. The value of each unit reflects the value of the fund and is typically priced on a daily basis. If the value of the fund increases, the unit price will rise. Conversely, if the value of the fund decreases, the unit price will decline.
An Exchange Traded Fund (ETF) is a managed fund that is listed and trades on the share market. The value of ETF units are determined by supply and demand on the market. Sometimes the value of the listed Managed fund may trade at a premium or discount to the net tangible assets of the underlying investments sitting within the portfolio.
If the Managed fund is unlisted, you or your Financial Adviser apply directly to a fund manager for new units in the managed fund via a prospectus or a product disclosure statement issued by the fund manager. The issue price of the units reflects the value of the assets on the day divided by the number of units on issue. The unit price is determined by the value of the underlying assets.