Managed funds are also known as unit trusts. Their attraction is that they offer a great deal more diversification than you could manage if investing with a smaller amount of money. This creates a diversified portfolio that can be considered much safer than one with fewer investments. Diversifying is one of the best ways to minimise loss when investing.

While you may not have day-to-day control over your money in a managed funds, you do have the ability to choose what kind of managed fund to invest in, in the first place. You can choose Australian shares only, international shares or a mixture of both. You can also choose the type of risk you are happy with. Growth funds give a better return for greater risk, while those funds that are considered safest have a much slower growth rate.

Another good point about managed investment funds is that they don’t need a lot of work from you. There will be a fund manager - or a team of them - who will look after your money and make all the decisions necessary to ensure the best return possible. No matter what kind of managed investment fund you decide on, you do need to know that there is always some risk. Whether that is small or great is up to you.

Managed funds are when a lot of small investors pool their money and are then able to invest in a greater variety of investment options. Most of the hard work and decision-making is done by the manager/s of the fund - usually a board. Of course, they are trained in the art of investing, so you can be reasonably sure of making a decent profit. It is possible to start investing in a managed fund and access diversity with a smaller amount of money than would otherwise be the case. A managed fund investment causes less stress for those investors whose time and/or ability are limited. The fund manager does all the hard work and spends all the time needed to make sure the investment is successful.

No investment is 100% safe, but with a managed fund, wide diversification is possible due to the large amount of money involved. Good diversification mean less risk and better returns over-all. Managed funds in Australia consist of Australian and international equities, cash, fixed interest and property. Some managed funds focus on only one asset class - with wide diversity within that class - while others diversify more widely with investments throughout many or all the classes. These are called multi-sector or balanced funds.

When an investor puts his money into a managed fund, he is issued with units, all at a specific price. This price may increase or decrease, depending on what the share market in those sectors is doing and depending on what the value of the underlying investment is. The issue price of a unit is what it costs the investor to buy, while the value of the unit when you withdraw or sell assets is called the withdrawal price. The difference between the two prices is called the buy-sell spread. Of course, it costs money to both buy and sell units in a managed fund and the price must reflect this cost, or others in the fund would be disadvantaged. Typically, banks and other lending institutions offer managed funds.