What is a managed investment scheme?

Date: Sep 14, 2014
Document Type: Article

Wading through the quagmire of financial services can be daunting, but being fully informed about, and understanding, your options will ensure you are choosing the best financial arrangement for your circumstances.

One of the most common types of financial structure that you may have heard of are ‘managed investment schemes’. They are also sometimes referred to as ‘managed funds’, ‘pooled investments’ or ‘collective instruments’. Generally, the common elements of managed investment schemes are:

  • people contribute money to gain an ‘interest’ in the scheme
  • the money is pooled with other investors or in a common enterprise
  • an external operator, as opposed to the members, have day-to-day control over the scheme

The money that is pooled in the scheme is generally invested in shares, some kind of asset or even in the operation of a business. In most cases, the ‘interest’ you get in the scheme will be units or other rights in the scheme. The scheme will generally be managed by a professional fund manager, relieving you of any responsibility in the day-to-day running of the investment.

Given the criteria, the status of managed investment scheme applies to a wide variety of financial instruments. The most common types of managed investment schemes are trust structures, in which a responsible entity (trustee) hold the assets of the scheme on behalf the members and invest it accordingly in order to make profits for its members. Managed investment schemes can also refer to:

  • managed funds
  • real estate investment trusts
  • exchange traded funds
  • listed investment trusts
  • mortgage schemes
  • hedge funds
  • financial assets schemes
  • forestry schemes
  • international equity trusts
  • timeshare schemes
  • actively managed strata title schemes
Registered or unregistered?

Managed investment schemes can be either registered or unregistered. In both cases, the operator has to hold an Australian Financial Services (AFS) licence authorising it to run the scheme

Managed investment schemes must be registered with ASIC if they are being offered to retail clients. In order to become registered, the responsible entity must be registered as an Australian public company. In addition, the scheme has to have a constitution, a compliance plan and a compliance plan auditor.

Unregistered managed investment schemes are for wholesale clients. For more information regarding the distinction between retail and wholesale clients please refer to ‘What is the difference between a retail client and a wholesale client?’

What are not managed investment schemes?

Given the wide reach of the managed investment scheme’s criteria, legislation has provided for a number of express exclusions. Often exclusions are made because the particular type of investment structure is managed by its own set of regulations, such as superannuation funds. Other examples of financial structures which are expressly excluded include:

  • certain partnerships
  • approved deposit funds
  • debentures issued by a body corporate
  • barter schemes
  • franchises
  • direct purchases of shares or other equities
  • schemes operated by an Australian bank in the ordinary course of banking business (eg. term deposit)
  • retirement village schemes

Craddock Murray Neumann Lawyers Pty Ltd are experienced practitioners in the field of corporate law. For more information about our services, please contact us at craddock@craddock.com.au or call us on (02) 8268 4000.

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