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What is a Self Managed Superfund?
A Self Managed Super Fund (SMSF) is a privately operated superfund, managed by you, that is regulated by the ATO.
SMSFs are different form your everyday retail super fund, where member money is simply pooled and invested under the manager’s guidance.
SMSFs can have up to four members who are responsible for the decisions made within the fund, jointly managing the fund as they see fit. This flexibility allows you to invest the money contributed to your Superannuation in a manner that you feel most comfortable and ensures maximum clarity of investment; you have complete control of the allocation of your funds.
Why Set Up an SMSF?
SMSFs are one of the fastest growing investment vehicles within the Australian market; according to APRA (Australian Prudential Regulation Authority) as of March 2013 there are approximately five hundred thousand Self Managed Super Funds within Australia. That’s an increase of almost forty thousand on the previous year.
There are many reasons you might look to invest through an SMSF. It could be simply that you feel your retail Super Fund is not providing acceptable returns. Maybe you want more clarity from you investments. Perhaps you feel that the investments made by your retail fund are unethical and you wish to see your funds invested elsewhere.
The flexibility afforded by an SMSF means that you can invest in property, shares, commodities or even art.
There is a very wide range of products available and you aren’t limited to your basic bundle of shares most retail super funds invest in.
When was the last time your super fund contacted you to make you aware of your current investments? All investments made within an SMSF are decided upon by the members, and are based on the SMSF’s investment mandate. This means that no investments can be made without your approval.
You make the decisions. Whether your super is invested in property, equities or even just held in a term deposit – you choose the investments that suit your appetite for risk and your investment timeline.
Can I Start a Self Managed Super Fund?
If you are looking to start your own SMSF it is important that you speak to a professional to discover whether or not it is a suitable option for you. The costs of opening and maintaining an SMSF is one of the key factors when considering starting your own. These costs may seem initially high however unlike the percentage based fees associated with retail super funds the cost to audit your super fund is a flat fee, which means that as your super grows the costs can actually become less by comparison.
Details such as the size of your super, how much your employer contributes per annum, whether you make excess contributions to your super and what type of investments you would like to make within your SMSF should all be considered before opening your own superannuation fund.
What's the Difference Between an Individual & a Corporate Trustee?
A trustee is an entity with which the responsibility of investing within the superfund lies. A trustee can either be an Individual (ie Bob Smith) or a Pty Ltd Company (Bob’s Super Company Pty Ltd).
In the case of an Individual you will need two trustees to act on behalf of the Superfund. This might be yourself and your partner or maybe a close family member.
If you were to set up your SMSF with a corporate trustee then you would only need one person to act as director of this special purpose company.
There are benefits to both sides and which one you chose depends on your personal situation, however we recommend you investigate a corporate trustee as a possible course of action due to greater control and protection for trustees .
What Can an SMSF Invest In?
Now that you have an SMSF, what can you begin to invest in? There is a vast amount of options you can look to invest in through your SMSF. There are some limitations on these investments and all investments must be made with the whole SMSF in mind. You can invest in equities and derivatives both nationally and internationally. You can invest in properties (once again in the domestic market or overseas). You could choose to invest in bonds, term deposits, forex, commodities, even art.
Before making any investment it is important to make sure it is compliant with the ATO’s investment guidelines and that it is within your rules outlined in your investment mandate.
Can I Invest in the Share Market?
Having an SMSF means that you can choose to invest directly in the market. It also means that should you wish to use strategies such as the covered call to generate extra income or if you’re looking to protect your portfolio through hedging strategies you can do that, too.
Provided you are following your investment mandate and are investing wisely the share market is a viable option for most every super fund.