Income investing: Managed funds vs. ETFs

Posted on 18 March '19 by , under money.

There are a number of options when it comes to choosing an income investment scheme. Investments that generate regular income can be useful in a number of various situations, for example funding your retirement lifestyle. Options to consider include managed funds or exchange-traded funds (ETFs).

Managed funds are where your money is pooled together with other investors and then bought and sold by an investment manager via shares or other assets on your behalf. ETFs are a type of managed fund that can be bought and sold on a secondary market like a share.

Managed funds:

  • Pricing: When buying and selling managed funds, investors won’t know their exit price until the next day. A sale takes place either at the end-of-the-day price or on the net asset value of the assets. You could have to wait several days to receive your money from the sale.
  • Risk: It is up to the individual fund manager to invest in particular stocks, allowing you to access a diversified portfolio made up of varying asset classes. This can reduce your level of risk by minimising the impact of poor performance by a particular industry or sector.

ETFs:

  • Transparency: ETFs are typically more transparent than actively managed funds. An investment manager’s website can have its underlying investments readily able to be seen, where managed funds provide relatively little information about the holdings of the fund.
  • Buying and selling: Arguably faster and more convenient than the trade of managed funds, ETFs are bought and sold like shares, meaning you will need a sharemarket account and a broker. One option could be online brokers, as there are many of them available and they offer lower rates. On the other hand, a managed fund is bought from the fund manager.