A Managed Fund is a ‘registered managed investment scheme’, which is a type of unit trust. By using a managed fund, investors’ money is pooled together and is used by the investment manager to buy investments and manage them on behalf of all investors in the fund. By pooling funds, investors can gain access to investment opportunities that they may not be able access if acting on their own.

Being a unit trust, when an investor invests in a managed fund they are assigned units proportionate to the amount of money they have invested. A managed fund is open ended, meaning that new units are created as investors join the fund and units are cancelled as investors redeem.

In reality, ETFs and managed funds are very similar types of products. In fact, in many cases, an ETF traded on the stock market will largely be identical to an unlisted version of the same product that’s available to investors as a managed fund. It’s often the case that a managed fund will be created first, and then an ETF version of the product will be launched sometime later to provide easy access to investors wanting to buy via the stock market.

ETFs and managed funds are both managed by professional fund managers. They choose and monitor the holdings the funds invest in. Both ETFs and managed funds have in-built diversification. They pool together money from many people and invest across hundreds, and sometimes thousands, of individual shares, bonds, and other investment securities. For example, instead of buying lots of separate shares, you can invest in one ETF or managed fund that owns shares across Australia’s 300 biggest companies.