ch.7 - Financial Planning in Australia 4ed by Taylor,...

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© 2011 LexisNexis Australia 1 Financial Planning in Australia 4ed – by Taylor, Juchau, Houterman Solutions by Roger Juchau CHAPTER 7 INVESTING IN MANAGED FUNDS Solutions to Questions Question 1: What is a managed fund? Discuss the importance of diversification and professional management. What is a managed fund? An investment that invests its unit holders’ money in a diversified portfolio of securities and other assets. Represents pooled diversification. An investment in a managed fund represents an ownership position in a professionally managed portfolio of securities and/or other assets. Professional management and the pooled diversification are likely to deliver competitive returns with low risk. Question 2: What are the attractions and drawbacks of managed fund investment? Attractions of managed fund ownership 1. Diversification. 2. Full-time professional management. 3. Modest investment outlays. Drawbacks of managed fund ownership 1. Costly transaction costs. 2. Management fees. 3. Fund managers not fulfilling their obligations. Question 3: Briefly describe how a managed fund is organised. Who are the key players in a typical managed fund organisation? Organisation of managed funds Various parts of a managed fund include: the fund itself, which is organised as a separate unit trust and owned by the unit holders; the management company runs the fund’s daily operations: the investment manager buys and sells securities and oversees the portfolio; the trustee safeguards the securities and other assets of the fund. Question 4: What regulations control the operation of managed funds? Managed fund regulation © 2011 Reed International Books Australia Pty Limited trading as LexisNexis. Permission to download and make copies for classroom use is granted. Reproducing or distributing any material from this website for any other purpose requires written permission from the Publisher. © 2010 Reed International Books Australia Pty Limited trading as LexisNexis. Ancillary for Financial Planning in Sustralia 4ed - Taylor, Juchau, Houterman
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© 2011 LexisNexis Australia 2 Must be licensed by ASIC. Must provide an approved Product Disclosure Statement to potential investors. Specific regulation of activities covered in the Commonwealth Managed Investments Act. Treated as a tax-exempt organisation. Question 5: What are the key fees and costs associated with using a managed fund? The key fees include: entry fees; exit fees; commissions, including trail; adviser fees; feeder fees; and administration charges. Fees can dramatically affect returns on funds. Fees comparisons through MER assist investing decisions. Fees can be reduced by investing in wholesale funds. Question 6:
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This note was uploaded on 01/10/2012 for the course FINS 3616 taught by Professor Curry during the Three '10 term at University of New South Wales.

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ch.7 - Financial Planning in Australia 4ed by Taylor,...

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