Managed Funds: Colonial First State Product Disclosure - Essay Example

Name 15 April 2009 Managed Funds: Colonial First State Product Disclosure Statement 1) Colonial First State, over the years has become Australia’s leading wealth management groups, with more than 170 billion Australian dollars under management globally. The primary reasons that have propelled the company thus far have been (a) strong investment performance (b) efficient administration (c) value for money (d) award winning service and above all being passionate about what they do. Irrespective of the size of customer investments their financial well being has always been dedicatedly taken care of. Source: Company information: Colonial First State website, Question 1. Some of the products are (i) FirstChoice Investments (ii) FirstRate Saver (iii) FirstChoice Margin Lending (iv) Cash Management Trusts – For Investors (v) FirstChoice Personal Super (vi) FirstChoice Employer Super (vii) Rollover & Superannuation Fund – For existing Colonial First State investors (viii) FirstChoice Pension. Source: Product Education: Colonial First State website, Question 1. 2) In a managed fund, money from multiple investors is pooled together. According to the investment objective, this fund is then professionally managed. By pooling money together in this form with other investors one may take advantage of the investing opportunities that otherwise is not accessible to an individual investor. Whenever one invests in a managed fund he/she is allocated a certain number of units based on the unit price prevalent at the time of investing. The units allocated represent the value invested which might rise or fall based on the rise or fall of the market value of the assets in the fund. The diversification that managed funds offer is their primary attraction. If one wanted to invest in shares and only had $ 1000, then in reality one could actually invest in only one company. If this company performs badly then one could lose the entire money. This also applies to property trusts. If invested in property trusts, then shopping centers, office complexes etc can be focused on. If deciding to invest in managed funds with a regular savings plan, since each month a fixed amount is contributed, managed funds can be a simple savings method. Investment in a managed fund also gives one the benefit of services of a professional fund manager. Listed ones can be traded on the stock market and have a market value determined by supply and demand. They are valued at least weekly by the fund manager. Source: Guide: Managed funds – www.moneymanager.com.au, Question 2. $1000 is the minimum investment that can be made. There is no minimum to the additional contribution one can make to the initial investment. Unless otherwise specified any additional investments will attract the same fee as one’s previous investment. Information is to be furnished as to how the additional investment is to be allocated. $100 is the regular monthly investment plan. On the first business day after 19th of each month, funds are drawn from the investor’s bank account. Subject to minimum account balance requirement, there is no minimum withdrawal amount limit one can make. Cheque or previously nominated banks can be the mode of withdrawals. Requests for withdrawal received prior to 3.00pm (Sydney time) on a New South Wales business day will be processed at the day’s unit price. Within seven working days payment is generally made normally. Withdrawals can be suspended under extraordinary circumstances. $100 is the monthly regular withdrawal plan. On the last business day before the 21st of each month or quarter funds are drawn from the investment and deposited in the nominated bank account. If withdrawals reduce the balance of funds from which one is withdrawing to zero then the regular withdrawal will stay cancelled 3d) Withdrawal from one fund and investing into another is known as Switching. At the exit unit price funds are withdrawn and at the entry unit price new units are invested. Completion of both transactions happens on the same business day. If a switch request includes an investment into a suspended or restricted fund, the allocation will be invested into the Colonial First State cash fund and the investor is notified of the same by a confirmation. Source: Supplementary PDS, pp 3, 17, Question 3a) to 3d). Cash normally refers to investments in bills of banks and such securities having a minimum investment timeframe. While they provide a stable return, capital loss is less in cash investments. Fixed interest securities such as bonds are similar to loans. Trading cash for bonds one gets a regular interest over a period of time for the bonds issued. The interest rate fluctuations influence the value of the bond. Cash is repaid on the maturity of bonds. Traditionally a lower return than shares but a fairly consistent one is seen in this case. The asset class property involves investing either directly in properties or buying property securities. The property security is exposed to infrastructures such as office, real estate and industries. Like shares they are also listed on a stock exchange and traded. Traditionally, investment in property has been relatively less volatile than shares. The partial ownership of a company is what is represented by shares and are usually traded on a stock exchange. As compared to other asset classes shares are very risky since they fluctuate very much. But they sometimes outperform others over long periods of time. Source: Supplementary PDS, pp 6, Question 4a. 4b) The four types of multi sector funds offered by Colonial First state are (1) Conservative Fund (2) Diversified Fund (3) Balanced Fund and (4) High Growth Fund. The maximum suggested timeframe is 3 years. The strategy of broad asset allocation is to be 30% invested in property and shares and 70% in cash and fixed interest. Diversified fund objective is to provide capital growth in medium-to-long-term, by investing in property, cash, shares, and fixed interest. The minimum suggested timeframe is 5 years. The broad asset allocation strategy is to invest 70% in property and shares & 30% in cash and fixed interest. Objective of Balanced Fund is to balance capital growth and income from investments made in cash, fixed interest, property and shares. The minimum suggested timeframe is 3 years. The broad allocation strategy is to invest 50% in shares and property and 50% in cash and fixed interest. High growth fund’s objective is to provide capital growth in long-term by investing in Australian and global shares as a diversified portfolio. The minimum suggested timeframe is 7 years. The broad allocation strategy is to invest up to 100% in shares. Source: Supplementary PDS, pp 8, Question 4b. 4c) With growth assets the investments increase in value over longer periods. Examples are shares and property. Defensive asset examples are fixed interest and cash which do not increase in value as much as growth assets in comparison. Source: Supplementary PDS, pp 8, Question 4c. 5a) The fee payable for managed funds is the contribution fee on mortgage income payable at 1.0%, on conservative fund payable at 2.5%, on Balanced fund payable at 3.0%, on all other funds at 4.0%. The applicable contribution fees may be deducted from the initial investment and any additional investments. Switching from a fund with a lower entry fee than the fund one is switching to, the difference between the two fees has to be paid. There is no switching fee as such. Source: Supplementary PDS, pp 13, Question 5a. 5b) Cash is the managed fund that has the lowest management cost p.a. and is 0.95%. Source: Supplementary PDS, pp 14, Management and Transaction Costs, Question 5b. 5c) Global health & bio-technology, Global Technology and communications, Geared Global Share and Mortgage income have maximum management fee p.a. Source: Supplementary PDS, pp 14, Management and Transaction costs, Question 5c. 6) Some of the risks associated with investment in managed funds are general risks such as (a) Market risk (b) Security-specific risk (c) Management Risk and (d) Liquidity Risk which are common to all funds and those that are fund specific such as (a) Currency Risk (b) Derivatives Risk (c) Credit Risk and (d) Gearing Risk. Investments can be affected by changes in interest rates, global events and investor sentiment depending on which markets or asset classes one invests in. Again within each asset class, individual securities like shares or bonds can be affected by risks that are specific to that security. Sometimes there is a management risk that the investment manager will not perform to expectation. Liquidity risk relates to the difficulty and delay in sale of assets for cash without an adverse impact on the price received. The influence of fluctuation in exchange rate introduces currency risk into managed funds investments. Credit risk is the risk that a party does not meet their obligations, such as when a borrower defaults in payment under a mortgage or fixed interest security. Gearing means the fund borrows so that it can invest more to increase potential gains. Gearing always increases losses (if any) and variability in the value of the portfolio. One should always consult one’s adviser about the above risks before taking a decision to invest. Source: Supplementary PDS, pp 5, Question 6. 7) When compared to a portfolio which is not geared the investors belonging to geared portfolio will experience greater fluctuations in their investment values and there will be enlargement of both gains and losses from the fund’s investments. Sometimes especially under extreme situations when there is a market fall as rapid as 40% in the Geared Share Fund or around 60% in the case of Geared Global Share Fund, all capital might be lost by the investor. A financial advisor may be consulted in such cases to consider the overall impact on the portfolio. The managed funds that have gearing risk are Gearing Share funds and Gearing Global Share funds. Source: Supplementary PDS, pp 22, Question 7. 8) Any concerns or complaints can be conveyed to Colonial First State by one of the following three ways: Calling them on the number 131336, Mon to Fri, 8am to 7pm, Sydney time Or emailing them at contactus@colonialfirststate.com.au Or Writing to them at Colonial First State Reply Paid 27 Sydney NSW 2001 If the problem or concern remains unresolved then the issue can be taken forward to Complaints Resolution officer using above contact details. All complaints are ensured to be properly considered and responded to swiftly mostly within 14 days. If still not satisfied or a response is not received within 45 days then the complaint can be subjected to review by the Financial Ombudsman Service (FOS) contactable toll free on 1300 708 808. Source: Supplementary PDS, pp 26, Question 8. 9) Investing $50,000 in property or property shares would be a safe bet since these are less volatile than shares. Also buying a property in upcountry market allows the value of the property to appreciate over a period of time fetching good returns without any fluctuations. Though investing in shares does sometimes outperform all other asset classes still it is very risk prone and hence not advisable and generally shares fetch good returns only over a long period of time. Managed funds based on fixed interest and Cash, though a safe bet, generally provide low returns and are very defensive assets as compared to property which is a growth asset. Also the management cost for a property share is as low as 1.50% as compared to higher percentages for shares. Source: Supplementary PDS, pp 6, 14, Question 9. Works Cited INVESTOPEDIA, A Forbes Digital Company, Web, Retrieved on 14 April 2009, Lomas, Margaret, 2002, How to Invest in Managed Funds, Wrightbooks, ISBN 0701636378, 9780701636371 Money Manager, Step by Step guide to Managed Funds, Web, Retrieved on 14 April 2009, Supplementary Product Disclosure Statement, 10 November 2008, Colonial First State Investments Limited, ABN 98 002 348 352 AFS License 232468 Read More