How Managed Investment Schemes Work
A managed investment scheme pools your money with money from other investors.
Managed funds are formally called managed investment schemes. A company with an appropriate Australian Financial Services Licence runs each fund. For a registered retail scheme, this company is called the responsible entity. An unregistered scheme is usually run by a trustee. The responsible entity often enters into an investment management agreement and appoints another company, the investment manager, to manage the fund’s investments. The investment manager’s main duty is to buy and sell shares or other assets and generally manage the investments on behalf of the scheme.
A scheme can be registered or unregistered. A registered retail scheme can be offered to retail investors. It must have a responsible entity that is a public company holding a licence. It must also have a constitution and a compliance plan. The responsible entity must either have at least half of its directors being external directors or have a compliance committee. An unregistered scheme is generally limited to wholesale investors.
Most schemes are unit trusts, but some use individual accounts. In a unit trust, investors acquire units at their current value. Some schemes allow redemptions, but others are illiquid, for example some property trusts. With an illiquid fund the responsible entity or trustee may, but need not, help arrange a sale of units in the case of death or other hardship.
There is a vast variety of managed funds. Some property schemes, for example, offer monthly distributions, usually at a higher target yield than a bank deposit, but distributions are not guaranteed. Higher yield comes with higher risk.
Other managed funds invest in property development, mortgages, private credit, peer-to-peer lending, and securities and derivatives in Australia and overseas.
Funds are classified by how they are managed. An actively managed fund is one where the fund manager buys and sells investments in a bid to outperform a specific market index. A passively managed fund buys a portfolio of assets that mimics an index. Its return is quite similar to the index it tracks, less fees.
Unit trusts distribute their income to unit holders each financial year, and unit holders pay tax on that income. Most unit trusts are not themselves taxable, unless they are a public trading trust, in which case they are taxed as a company. Public trading trusts can pay franked distributions to their unit holders.
Many investors spread their money across several funds and types of assets, which is called diversification. A diverse portfolio includes a mix of assets such as property, Australian and overseas shares, cash and bonds.
Managed funds are designed for people who want to invest in a variety of assets and benefit from the skills of investment managers. Research the responsible entity and investment manager carefully before you invest. Be aware of the fees you must pay and read the terms and conditions of the product disclosure statement or information memorandum carefully.
Schemes normally issue tax statements each financial year so investors can complete their income tax returns easily.
What Has Changed Recently
Regulators and the government have paid close attention to managed investment schemes since 2025.
- The Australian Securities and Investments Commission, called the regulator on this page, has examined private credit funds, including mortgage and property lending funds, and has issued interim stop orders on some retail fund offers in 2026.
- In February 2026 Treasury consulted on stronger rules for registered schemes. In August 2026 the Government announced its final positions. It does not appear to be proceeding with a majority of external directors on responsible entity boards, a ban on most related-party transactions or more detailed compliance plans. It does plan mandatory audit and assurance standards for auditors of compliance plans, and a requirement to tell the regulator when a fund freezes or limits redemptions. It will also consult on better data collection. Detailed rules and legislation are still to come.
- The regulator has decided to raise the minimum net tangible assets that responsible entities must hold. The increase starts on 1 July 2027, and annual indexation follows.
- The 2026–27 Federal Budget provided $17.8 million over four years to strengthen supervision, governance and enforcement for managed investment schemes. The funding goes to the regulator and other agencies.
- The regulator has said it will extend its review of financial reporting and audit practices to managed investment schemes in 2026–27.
I have helped companies apply for licences since 2000, and I have set up managed investment schemes, including project managing most aspects of the scheme: negotiating with the various parties, instructing solicitors, preparing disclosure documents, and managing the accounting and fund administration process.
This page contains general information only. It does not take into account your objectives, financial situation or needs, and it is not financial product advice.
Frequently Asked Questions
A managed investment scheme pools money from investors. A licensed operator runs the fund and may appoint an investment manager to buy, sell and manage investments on behalf of the scheme.
A registered scheme can be offered to retail investors and must have a licensed public company as its responsible entity, along with a constitution and compliance plan. An unregistered scheme is generally limited to wholesale investors and is usually operated by a trustee.
An actively managed fund buys and sells investments in an attempt to outperform a market index. A passively managed fund holds a portfolio designed to track an index, with returns generally following that index less fees.