A managed investment trust (MIT) is a structure in which investors pool money and the fund manager purchases and manages investments on their behalf. Some MITs even pay income or ‘distributions’ to unit holders.
The MIT structure permits both local and foreign companies and individuals to invest in Australia through ‘passive’ investments such as purchasing land for rental income or investing or trading in shares, units or other financial instruments.
What is a managed investment trust?
A managed investment trust (MIT) is a legally registered unit trust that uses its investors’ money to invest in shares, bonds, property and other investments. MNT employs an expert manager who uses pooled funds to purchase assets and manage them on behalf of all members within the trust.
Managed investment trusts (MITs) are a popular investment product that can be acquired through stockbrokers, savings schemes and Individual Savings Accounts (ISAs). MITs give investors access to complex or costly investment products they may not have the time or capacity to manage themselves.
Unit holders of a managed investment trust typically receive their units proportionate to the amount invested in the trust. The fund can be open-ended, meaning new units are created as investors join and redeemed when they withdraw from the trust.
In order to qualify as a managed investment trust (MIT), the trust must meet certain criteria. Most importantly, an MIT must not engage in trading or control another entity that does.
A trust must have a significant portion of its investment management activities carried out in Australia; this requirement differs for retail funds and wholesale funds.
A trust that conducts a significant portion of its investment management and control activities in Australia will qualify as an MIT, an important feature of the MIT withholding tax regime.
For a trust to qualify as an MIT, certain criteria must be fulfilled. Furthermore, those trusts which make payments to non-resident unit holders must satisfy certain conditions in order for those payments to take effect.
These requirements differ depending on whether a trust is a retail fund or wholesale fund (registered or unregistered). If it’s a retail fund, there must be at least 25 members.
To qualify as a wholesale fund, the trust must have at least 10 members.
In addition to having a minimum number of members, trusts must also meet both the member test and 25/60 test. In order for a trust to pass both these tests, majority of its members must be Australian residents.
Managed investment trusts are a type of unit trust
A managed investment trust (MIT) is a type of unit trust that uses trust structures to invest money from investors. MITs offer an attractive option for those who wish to invest in various assets but lack the time or expertise required for portfolio management on their own.
One of the primary advantages of investing in a unit trust is that it allows you to diversify your money across different investments, which can reduce risks and make investments more secure. However, keep in mind that these types of funds are also subject to market risks.
Unit trusts are not as tax-efficient as other funds, so you should take this into account before investing. Furthermore, make sure to understand the charges and expenses associated with them before making your investment decision.
Unit trusts offer another advantage as they are open-ended, meaning investors can purchase or sell units as long as the fund remains active. This makes them ideal for individuals who wish to contribute funds or withdraw their money from the fund.
Before investing in unit trusts, investors should read the prospectus carefully as this will provide all pertinent information about the fund. This includes investment objectives, risks and charges/expenses.
UITs are typically designed to generate capital appreciation and dividend income over a specific period of time, while also offering protection against the loss of your principal.
Before investing in a unit trust, it’s wise to consult your financial adviser. A qualified advisor can explain how the investment will be managed, what the risks are and how much charges and expenses will cost you.
Unit trusts can be invested in through a variety of ways, including stockbrokers or online fund supermarkets and platforms. You may also invest through an individual savings account (ISA) or nominee account.
Managed investment trusts are open-ended
Investors have many ways to invest their cash, but it is essential that they select the correct fund for their individual financial needs and investment objectives. Not only will selecting the correct fund help you meet those objectives, but it can also form part of a comprehensive financial planning process.
Funds come in two main varieties: open-ended and closed-ended. An open-ended fund’s share price reflects the value of its underlying assets, while a closed-ended one fluctuates according to demand and supply. When more investors want to buy into a fund than sell, its manager usually issues more units; conversely, when less investors wish to participate, he may cancel existing units already issued.
Unfortunately, open-ended funds do not always trade at their net asset value (NAV), meaning the price of a share may differ significantly from the worth of its underlying assets. This makes them challenging for investors to comprehend.
Another distinguishing characteristic of open-ended funds is their capacity to borrow money (known as gearing) to invest in additional assets. This not only increases the potential for gains, but can also amplify losses should things go awry.
Open-ended funds can be either single-priced or dual-priced. Single-priced funds have one unified price for all shares, while dual-priced ones provide both buying and selling prices. This provides some useful insights into how different asset classes are represented in the market, as well as granting investors greater freedom to buy or sell a share at certain times.
Unlisted Investment Trust (UIT) are collective investment schemes that enable investors to purchase shares in a portfolio of stocks and bonds. The investments within the trust are chosen by its sponsor, who also determines its investment objective as well as other terms in its prospectus.
Portfolios often employ rules-based stock selection strategies with hypothetical performance records spanning decades. Whether or not this portfolio is suitable for you depends on your specific investment needs and objectives, as well as your risk tolerance.
Managed investment trusts are tax-effective
Investment trusts are an increasingly popular way for families to invest their money. They pool investors’ funds and then a professional fund manager manages the investment strategy. Investment trusts invest in various stocks, bonds and other securities.
Tax-exempt bonds can be beneficial when managed correctly, but there are numerous factors to take into account.
A trustee must consider the needs of beneficiaries, risk tolerance and investment objectives of the trust. Furthermore, they should take into account whether income and capital gains generated by a trust may be tax deductible.
At distribution, assets belonging to a trust (such as stocks, bonds or property) are assessed their worth at their current value; while ‘income’ refers to what those same assets earn or produce during that same timeframe. Taxation on income from trust distributions generally falls on the beneficiary at their marginal rate while ‘principal’ is usually exempted from taxes altogether.
Depending on the trust structure, income and/or principal that the trust receives can be reclassified at the end of a tax year. This could be beneficial to unit holders if it results in income being converted to more tax-effective taxable events such as qualified dividend income or long-term capital gain.
Furthermore, there are various UIT fees and charges you should be aware of. These include initial sales charges, deferred sales charges, creation/development expenses as well as annual trust-operating expenses.
In the prospectus for each UIT, fees associated with ownership may be specified. These costs may differ based on factors such as fund, sponsor and trust duration.
It is essential to comprehend the risks associated with investing in a managed investment trust, particularly as you could potentially lose all of your original investment. Even if assets have been purchased at a premium price, their value could decrease over time.
Before investing, always read the prospectus and consult with a financial advisor. Industry predictions can be inaccurate, and securities selected for trust may not contribute to overall industry growth if any.
The Government is currently deliberating a bill that will introduce an entirely new tax regime for Attribution Managed Investment Trusts or AMITs, certain managed investment vehicles. This regime will take effect on July 1, 2016.