While direct equities offer many advantages, there are some associated risks and challenges, especially for less experienced investors.

One way to overcome many of these risks is to let someone else make investment choices for you by investing in Investment Funds managed by professional investors whose job it is to maximise returns for fund members. By pooling money from a number of investors together, the fund manager has increased buying power and can invest across a range of asset classes, geographies and companies. This diversification allows them to reduce risk.

Like shares, Managed Funds also provide the following benefits:

  • They are purchased in units, which means you own a portion of the underlying investments
  • Any profits distributed by companies owned by the fund are passed on to you and can be reinvested
  • They are highly liquid, providing ready access to your capital when needed

Internally Geared Funds

Gearing simply means borrowing. Internally geared funds are managed funds that have borrowed additional money, which they then invest on your behalf.  The interest paid on the borrowed money is passed on in the form of management fees.

By borrowing money, the fund manager is able to increase the amount you invest. This results in magnified positive returns when the assets in the fund perform well. However, it also results in increased volatility and the possibility of increased loss.

For investors who are willing to accept an increased level of risk and who are investing for the longer term, internally geared funds can greatly enhance the potential for wealth creation. 

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