How Do Property Funds Work?
Managed funds are an appealing option for many investors. They provide an opportunity to diversify your portfolio, earn passive income, and leave the management of investments to experienced professionals.
What is a managed fund?
A managed fund is a simple concept: multiple investors pool their money together to invest in assets such as commercial properties. Professional managers handle everything, from selecting the properties to overseeing their management, so investors don’t need to spend time or effort on these tasks. This approach also makes it possible for individuals to access large-scale investments that might otherwise be out of reach financially.
Open-ended vs Closed-ended Funds
Managed funds are typically structured as either open-ended or closed-ended, with key differences between the two:
Closed-ended funds: These funds have a set period for raising capital. Once the required funds are collected, no new investments or additional contributions are accepted. The fund then acquires its target assets and operates until a predetermined end date or objective is reached.
Open-ended funds: These funds regularly accept new investments. Investors can purchase units in the fund at intervals, and the additional capital may be used to acquire more assets, pay down debt, or be allocated to alternative income-generating investments. Open-ended funds remain active for an indefinite period and only close when the manager decides it’s the right time.
Features of Open-ended Funds
Continuous investment opportunities: Investors can buy into the fund at regular intervals, allowing flexibility in timing.
Portfolio growth: New capital inflows can be used to acquire additional properties, diversify the portfolio, or reduce debt.
Unit pricing: The value of units in the fund is based on the net asset value of the portfolio, reflecting the worth of the underlying properties and associated costs. Property valuations are conducted regularly to ensure accurate unit pricing.
Liquidity options: Open-ended funds provide redemption windows, where investors can withdraw their funds, including any growth in value, at specified intervals.
Benefits of Open-ended Funds
Flexibility: You can invest when you have funds available, rather than waiting for a fixed capital-raising period.
Incremental investments: Additional contributions can be made over time, allowing you to gradually increase your exposure to the fund.
Redemption opportunities: Unlike closed-ended funds, open-ended funds offer periodic windows for investors to withdraw their money if needed.
Which Fund Structure is Right for You?
Choosing between open-ended and closed-ended funds depends on your financial goals, investment horizon, and preferences. Open-ended funds offer greater flexibility, while closed-ended funds provide more structure and predictability. Regardless of the fund type, it’s important to evaluate the fund’s strategy, potential risks, and the expertise of the team managing it.
Managed funds are a versatile investment option, giving investors access to larger-scale opportunities and professional management, making them an excellent choice for both seasoned and new investors alike.