Understanding Managed Investment Schemes: Definition And Key Features

A managed investment scheme (MIS) is a scheme that enables a group of investors to contribute money that is pooled for investment to produce a financial benefit. Managed investment schemes are also known as 'schemes' or 'pooled investments'. They are a popular investment arrangement as they provide investors with access to assets and asset classes that may otherwise be inaccessible. Managed funds are a type of managed investment scheme where your money is pooled together with other investors. A fund manager then buys and sells assets, such as cash, shares, bonds and listed property trusts, on your behalf.

Investors pool money to produce financial benefit

A managed investment scheme is a scheme that enables a group of investors to contribute money that is pooled for investment to produce a financial benefit.

The concept of managed investment schemes was introduced in July 1998 by the Managed Investments Act, which replaced the old "prescribed interests" regime. Managed investment schemes are also known as 'schemes' or 'pooled investments'. In a managed investment scheme, multiple investors contribute money or money's worth and get an interest in the scheme. The money from the different investors is then pooled together, often from many hundreds or thousands of investors, or used in a common enterprise.

The investors in the scheme do not have day-to-day control over the operation of the scheme. Instead, a 'responsible entity' or a 'fund manager' operates the scheme. Managed investment schemes are a popular investment arrangement as they provide investors with access to assets and asset classes that may otherwise be inaccessible.

There are several types of managed investment schemes, including cash management trusts, equity trusts (Australian or International), agricultural schemes, mortgage schemes, and actively managed strata title schemes.

When investing in a managed fund, your money is pooled with other investors' money and spread across different kinds of investments. A manager then chooses how the fund is invested according to the rules set out for each fund, and each investor owns a proportion of the total fund.

Managed funds are a popular choice for investors who don't want to spend a lot of time managing their investments. They allow investors to outsource parts or all of their portfolio to a suitably qualified expert who pools individual investments into a larger investment fund and manages that money.

Investors acquire rights to benefits produced by the scheme

A managed investment scheme is a scheme that enables a group of investors to contribute money that is pooled for investment to produce a financial benefit. The concept of managed investment schemes was introduced in July 1998 by the Managed Investments Act, which replaced the old "prescribed interests" regime. Its most significant change was the replacement of the roles of trustee and manager with a single role.

The first element of the definition of a managed investment scheme is that there must be a "scheme". While the term "scheme" is not defined in the Corporations Act 2001, several decisions indicate how the term will be interpreted by the Courts. One well-recognised decision states that the "essence" of a scheme is:

> a coherent and defined purpose, in the form of a ‘programme’ or ‘plan of action’, coupled with a series of steps or course of conduct to effectuate the purpose and pursue the programme or plan.

The second element of the definition is that investors contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme. This means that investors must give something of value (usually money) in order to receive a share of the profits or other benefits generated by the scheme. The benefits can be financial or consist of rights or interests in property.

The third element is that all contributions from investors are pooled or used for a common purpose to further produce benefits. This means that the money contributed by investors is combined and invested together, rather than being invested separately.

The fourth element is that the members of the scheme (investors) are not active in controlling the scheme's day-to-day operations. This means that the investors do not have a direct say in how the scheme is managed on a daily basis. Instead, a 'responsible entity' or fund manager is responsible for operating the scheme and making investment decisions.

Managed investment schemes are a popular investment arrangement as they provide investors with access to assets and asset classes that may otherwise be inaccessible, as well as portfolio diversification. Investors hold units in the trust and rely on a managing party to appropriately invest the pooled funds for a profit, which they are then entitled to on a pro-rata basis.

It is important to note that not all investments are considered managed investment schemes. Some examples of investments that are not managed investment schemes include regulated superannuation funds, approved deposit funds, direct purchases of shares, and schemes operated by banks (such as term deposits).

Contributions are pooled or used for a common purpose

A managed investment scheme is a scheme that enables a group of investors to contribute money that is pooled for investment to produce a financial benefit.

The second element of the definition of a managed investment scheme is that investors contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme. Working out whether people contribute money is straightforward, but money's worth is a broad concept. Depending on the situation, investors might contribute traditional investments (such as shares), rights to carbon credits produced by land use, or crypto assets.

The third element of the definition is that all contributions from investors are pooled or used for a common purpose to further produce benefits. These benefits may be financial or consist of rights or interests in property.

The pooling of funds allows investors to diversify into areas where they would not otherwise have had sufficient funds to enable them to participate. This is a significant advantage of managed investment schemes.

The production of benefits is intended to derive from the pooling of funds or their use in a common enterprise. Depending on the underlying assets of the scheme, a wide range of different benefits are possible.

Managed investment schemes are also known as 'schemes' or 'pooled investments'. They cover a wide variety of arrangements and underlying assets. Some examples include cash management trusts, equity schemes, agricultural schemes, and time-sharing schemes.

Members are not involved in day-to-day operations

Managed investment schemes, also known as 'schemes' or 'pooled investments', are a type of investment where multiple investors contribute money that is pooled together and used for a common purpose. The investors then receive 'interests' in the scheme, which are a type of financial product regulated by the Corporations Act.

A key feature of managed investment schemes is that members are not involved in the day-to-day operations of the scheme. This means that investors do not have control over the scheme's daily activities and decisions. Instead, a 'responsible entity' or 'fund manager' is responsible for operating the scheme and making investment decisions on behalf of the investors. This separation between investors and the management of the scheme ensures that investors can focus on their financial goals without the burden of day-to-day management.

The lack of day-to-day control by members is a defining characteristic of managed investment schemes. This feature is outlined in Section 9 of the Corporations Act 2001, which provides the legal definition of such schemes. It is important to distinguish managed investment schemes from other types of investments, such as direct purchases of shares or schemes operated by Australian banks, which do not fall under this category.

The concept of managed investment schemes was introduced in July 1998 by the Managed Investments Act, which replaced the previous "prescribed interests" regime. This act brought about significant changes, including the introduction of a single role to oversee the scheme, enhanced investor protection measures, and the separation of scheme assets from those of the scheme operator.

Managed investment schemes offer investors access to a diverse range of assets and asset classes, providing opportunities for financial growth. By pooling their funds with other investors, individuals can invest in areas that may have been otherwise inaccessible. This diversification of investments is a key advantage of these schemes.

In summary, the fact that members are not involved in the day-to-day operations of managed investment schemes is a crucial aspect of their structure. This feature sets them apart from other types of investments and allows investors to benefit from professional fund management while pursuing their financial goals.

The scheme is operated by a fund manager

A managed investment scheme is a scheme that enables a group of investors to contribute money that is pooled for investment to produce a financial benefit. The scheme is operated by a fund manager, also known as a "responsible entity", who is responsible for investing the pooled funds to generate profits for the investors.

The role of the fund manager is to make investment decisions on behalf of the investors and manage the day-to-day operations of the scheme. The fund manager buys and sells assets such as cash, shares, bonds, and listed property trusts, with the goal of producing financial benefits for the investors. It is important to note that investors do not have day-to-day control over the operation of the scheme; instead, they rely on the fund manager to make investment decisions and ensure the scheme complies with regulatory requirements.

Fund managers typically charge a range of fees for their services, such as establishment fees, contribution fees, management fees, and performance fees. These fees can have a significant impact on the returns generated by the managed investment scheme, and it is important for investors to carefully consider and compare the fees charged by different fund managers before making an investment decision.

In some cases, a fund manager may also provide advice and guidance to investors on their investment options within the scheme. This can include helping investors understand the risks and returns associated with different investment choices and ensuring that the investments made by the fund manager align with the investors' financial goals and risk tolerance.

Fund managers are also responsible for providing regular updates and reports to investors on the performance of the managed investment scheme. This includes information on the fund's risk indicator, returns over a specific period, fees charged, and how the fund's investments align with the intended investment mix. These updates help investors monitor the performance of their investments and make informed decisions about their financial portfolio.

Overall, the role of the fund manager in a managed investment scheme is crucial in ensuring the successful operation of the scheme and generating financial benefits for the investors. By pooling the funds contributed by multiple investors, the fund manager is able to diversify investments and potentially provide investors with access to assets and asset classes that may have otherwise been inaccessible to them as individual investors.

Frequently asked questions