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First Managed Fund Investment?

Discussion in 'Managed Funds & Index Funds' started by *Paul*, 11th Jun, 2010.

  1. *Paul*

    *Paul* New Member

    11th Jun, 2010
    Hi There!
    I have finally saved up the minimum $5K most managed funds require and I am ready to invest. I'm aiming to be contributing at least $200 per month too.

    However, it seems there a quite a few funds out there and I'm not sure which is the right one for me.

    I have just graduated from university and am now working full time so I’m not interested in a fund for income. I am looking to grow my investment over some time.

    I have been looking more towards the moderate risk/balanced funds such as;

    CFS Moderate
    Vanguard Balanced and
    BlackRock Balanced

    I really like the low Vanguard MER and nil contribution fee but then again, if it's not a well-performing fund, there's not much point choosing it based on low fees.

    Does anyone have any suggestions on good funds to start out on for a few years?

  2. Waimate01

    Waimate01 Well-Known Member

    26th May, 2008
    If you decide to go CFS, they used to have a tendency to churn their portfolios. What this means is that you end up with a sizeable tax liability for unrealised (to you) gain. Because their performance figures don't take into account the tax you have to pay, they don't worry too much about minimising it.

    The important thing to understand is that this is not tax you pay on a gain you have received (I think we can all stomach that), but a tax you pay on a gain you have not received, thus you must find "other money" to settle the tax debt each and every year.

    I'm not saying the CFS fund you are contemplating is necessary like this, but I was with four CFS funds and they all were. So worth doing your homework.
  3. jabba_jones

    jabba_jones Well-Known Member

    2nd Dec, 2007
    One of the downfalls of managed funds, they don't take into account your personal tax objectives. I don't know of any performance benchmarks that are done on a post tax basis so all fund managers are in the same boat. If anyone knows of one please let me know!

    If they churn the portfolios, the gains would be realised and will be distributed along with income (less capital losses) normally at the last distribution for the year.

    Generally with a larger fund (FUM and Unit holder base) more netting can occur, which will reduce un-necessary churn of stock. However there are always portfolio re-weightings / day to day trading which will generate realised gains.

    This can seem like the case if you nominate to re-invest your distributions. However you have recieved that capital gain with any income and there is a tax-liability associated with it.