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Most people have their super with a fund that’s managed by a third party – a fund manager, a large corporation or an industry body. A rapidly growing number of people, however, have decided to manage their own super funds. In many cases they’re people who own a business or are self-employed. Following the introduction of Super Choice rules in 2005, many employees are also opting to manage their own super savings via a self-managed super fund.
What is a self-managed super fund?
A self-managed super fund (SMSF) is a super fund that’s regulated by the ATO. Unlike ordinary industry funds, all members of the fund must also be trustees of the fund and are responsible for ensuring the fund is properly managed and all laws are observed.
A SMSF can have up to four members and can be made up of either friends or family. All members of a SMSF are responsible for the fund’s investments and insurance.
What are the benefits of a SMSF
SMSFs have continued to grow in numbers at a solid rate. Common reasons for their continuing popularity include:
- More control – over the investment strategy and the way it is implemented
- Greater investment choice – although there are some limitations imposed by law and the trust deed
- Costs – because you control the investment management you may have the ability to minimise the fees incurred by the investment portfolio and the degree of trading within the portfolio
- More opportunities for tax effective investments
- Potentially higher net returns, due to lower costs, less tax and a more effective investment strategy
Is a SMSF right for me?
While having control of your own super can seem appealing to some, it can entail a substantial amount of work and knowledge and usually requires professional support and guidance, especially with laws around superannuation.
Setting up a self-managed super fund (SMSF) can be a minefield, even if you have a good level of financial knowledge. Before you embark on managing your own fund, it’s important to know the different strategies relevant to you and your goals, the level of risk involved with each option and also the potential returns you can expect to receive.