Funds Management Flashcards
What do fund managers provide?
Fund managers provide collective investment services to surplus units by attracting funds from investors and by professionally managing their investment
they contribute to the flow-of-funds through direct financing and provide households with a wide range of investment opportunities
Who carries the investment risk in funds management?
The investment risk remains with the contributor
Who are the main groups of fund managers?
The main groups of fund managers are superannuation, collective investment vehicles (who are mainly public unit trusts) and life insurance
What is a growth asset?
Assets with greater levels of risk and returns such as shares and property trusts, are known as growth assets
What is a defensive asset?
whereas low risk/return assets, including cash and interest-earning securities, are called defensive assets
What is a growth portfolio?
A growth portfolio is weighted towards high risk/return asset classes
What is a balanced portfolio?
A balanced portfolio holds a combination (such as 60:40) of growth and defensive assets
What is a superannuation fund?
Superannuation is a long-term savings scheme that aims to generate retirement income from contributions made during a person’s working life.
What are the main features of compulsory superannuation in Australia?
The main features of compulsory superannuation in Australia are to ensure that:
* there is a minimum level of contributions (this was 9.5 per cent in 2018)
* that superannuation contributions and earnings are subject to a concessional income tax rate (of 15 per cent), subject to an upper limit
* funds remain in the contributors superannuation account until retirement. (4.1 Superannuation funds, 4.2.2. Superannuation – a contributor’s view)
What is an accumulation superannuation scheme?
Accumulation schemes – produce a lump sum that depends upon the size of contributions and the rate of earnings on their investment
the investment and survivorship risk is borne by contributors
What is a defined benefit scheme?
Defined benefit schemes – commit to pay a specified benefit (either as a lump sum or pension) to the retiree
What schemes make up the superannuation industry?
The industry comprises:
Not-for-profit schemes established by:
employers, categorised as corporate or public service schemes
trade unions, categorised as industry schemes
For-profit schemes established by professional fund managers
known as retail schemes
There are also many self-managed funds (SMSFs)
What are self managed superfunds?
SMSFs are trusts with up to four members, all of whom must be trustees of the fund
Assets in the fund are managed by its member(s) for the sole purpose of providing retirement income
Most operate under rules set by the Australian Tax Office
The number of SMSFs has consistently grown
Compared to managed funds, they invest less in growth assets and a higher proportion in defensive assets
What is a collective investment scheme?
These are investment vehicles that enable ownership of a small portion of large portfolios of securities (or other assets)
1. Public unit trusts
2. Exchange-traded funds
3. Private equity funds
4. Hedge funds
What is a public unit trust?
ASIC-regulated collective investment schemes that raise funds by selling units to the public, which represent a share of their assets