Want to grow your money without picking every single investment yourself?
Managed Funds are one of the most common investment vehicles in Australia. They take pooled capital from many investors and allow a professional fund manager to work on your behalf. So what do you get?
You get access to:
- A diversified portfolio
- Professional management
- Markets you couldn’t easily reach on your own
The thing is: managed funds can have different investment objectives. Some seek growth, others income, and some aim to preserve your capital during market downturns.
Let’s jump in!
What’s inside this guide:
- What Are Managed Funds?
- How Managed Funds Actually Work
- The Main Types Of Managed Fund Strategies
- The Risks You Need To Know
- Returns: What Can You Realistically Expect?
What Are Managed Funds?
Ok, so what are managed funds and why are so many Australians investing in them for wealth creation?
A managed fund is a collection of investments where your money is pooled with that of other investors. A professional fund manager invests the pooled money in a variety of assets.
- Shares
- Property
- Bonds
- Cash
- Infrastructure
When you invest, you purchase “units” of the fund. The value of those units increases or decreases depending on the performance of the underlying assets.
Pretty simple, right?
Managed funds are so popular for a reason. They allow ordinary investors to tap into markets otherwise unavailable. You won’t need millions to spread your investments across various sectors — the fund does that for you.
Australian managed funds pulled in $35.9 billion of net inflows throughout 2025. That speaks volumes about investors’ confidence in this investment vehicle.
How Managed Funds Actually Work
Let’s break down how the whole thing functions behind the scenes.
When you put money into a managed fund, here’s what happens:
- Your money joins the pool of other investors’ funds.
- The fund manager invests it according to the fund’s strategy.
- You get issued units representing your share of the pool.
- The fund earns income (dividends, interest, rent) and capital gains.
- Returns are passed back to you as distributions or unit price growth.
The fund manager is ultimately the decision maker. They determine what to purchase, when to liquidate and how to allocate.
One thing to keep in mind:
You will get charged fees for this. Most Funds take a management fee and may take a performance fee. The good ones deserve their fees…the bad ones don’t.
The Main Types Of Managed Fund Strategies
Now for the fun stuff — how fund managers invest your money. The majority of managed funds fit into one of these categories.
Active Management
This is the traditional style of investing where the fund manager attempts to outperform the market. They:
- Pick individual investments
- Time their entries and exits
- Adjust the portfolio based on market conditions
The objective is to beat an index such as the ASX 200. The problem? Trying to beat the market is difficult. Per the recent SPIVA Australia scorecard, 74% of active Australia Equity General funds missed the S&P/ASX 200 in 2025.
Passive (Index) Management
Passive funds simply track an index. There’s no stock picking and no fancy timing.
Why use this approach? Because:
- Fees are way lower
- Performance is predictable
- You don’t need to rely on a manager’s skill
Passive funds are perfect for investors who just want long-term market exposure.
Income-Focused Strategies
These funds are built to generate regular income, often from:
- Bonds and fixed-interest investments
- Dividend-paying shares
- Property trusts (REITs)
Fixed income funds have proven extremely popular in Australia with record amounts of money finding their way into these funds in 2025. The inflow during 2025 hit $17.3 billion.
Growth Strategies
Growth oriented managed funds aim for capital growth. They invest in assets that are expected to increase in value. Typically these are shares and growth sectors. These funds are higher risk with the potential for higher returns over the long term.
Multi-Asset (Balanced) Strategies
Had enough of choosing? Multi-asset funds invest in shares, bonds, property and cash. It’s the one-stop ‘set and forget’ option for investors.
The Risks You Need To Know
All investments carry risk. Managed funds are no exception. Here are the risks every investor should know.
Market Risk: If markets decline, so will the value of your fund. Equity funds are subject to significant volatility in times of market turmoil.
Manager Risk: What happens if your manager isn’t making good decisions or leaves the company? The performance can decline. Research their track record always.
Liquidity Risk: Certain funds invest in assets that may be difficult to sell. If many investors wish to sell shares at the same time, you may not be able to do so promptly.
Costs: Excessive fees can slowly and silently kill your returns. That extra 1% can equal tens of thousands of dollars over a 20 year period.
How to manage these risks? Invest in more than one fund and read the PDS prior to investing.
Returns: What Can You Realistically Expect?
Now we discuss the inevitable…how much money will you make?
The honest answer is: it depends on the strategy.
Here’s a rough guide based on long-term historical averages:
- Cash funds: 2-4% per year
- Bond/fixed income funds: 4-6% per year
- Balanced funds: 6-8% per year
- Growth/equity funds: 7-10% per year
The Australian managed funds sector is enormous. Total funds under management are expected to be worth almost $5 trillion by 2025-26.
But here’s the kicker:
Historical returns are not indicative of future results. Consider the long-term performance record, not just past year returns.
And remember — compounding is your friend. A 7% return each year will double your money in just over 10 years.
Final Thoughts
Managed funds allow you to build wealth through investing even if you’re not an investor full-time. They offer access to professional managers and diversification.
To quickly recap what you need to do:
- Decide your investment goal (income, growth, or balanced)
- Pick a strategy that matches your risk tolerance
- Compare fees, performance history, and the manager’s reputation
- Read the PDS carefully before investing
- Diversify across a few funds to spread your risk
If you get the fundamentals right, managed funds can be one of the easiest ways to create long-term wealth.
