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Super Funds


Costs of superannuation funds

There can be a number of costs involved in belonging to a superannuation fund, including entry, transferring (or switching), ongoing, and exit costs.

The entry fee generally covers the commission for selling the superannuation fund to the investor, with its associated costs: the cost of the administration which relates to having that investor as part of the fund, for example. These costs vary considerably, depending on the asset invested in, the fund manager, and the amount invested. Try negotiating this fee with the fund manager. Take note that there's unlikely to be an entry fee on additional investments, such as lump sums and regular savings.

Most fund managers will let you transfer your money between funds. Check the paperwork, but you should expect to be able to do this freely, unless the fund you're moving to has a higher entry fee than the fund you're transferring from.

There are generally three on-going costs: the annual fee paid to the investment manager to cover investment and administrative activities, a service or trail commission paid to the financial adviser, and an annual fee paid to the trustee. Again, these fees, in particular that going to the investment manager, will vary. This reflects, in part, the different nature of the investments, but also reflects the different charging philosophies of various fund managers. When comparing the returns of different investments, ensure you compare various on-going costs. Examine the true value of those costs. For example, higher costs may be justified in the case of a fund manager who generates consistently higher returns. Remember, also, that nothing is free. When investing in superannuation funds, you have someone else looking after your investments. So quite apart from the expertise you're buying, you're probably also saving yourself a lot of personal time and effort.

Returns of superannuation funds

The return on your investment is probably the most crucial part of your decision-making criteria.

In assessing the future returns of a fund, the best guide is the returns a fund has already achieved. But, always remember, that "returns achieved in the past by an investment can only ever be a guide to the future". So the Shape of Money suggests that you

  • Consider funds with a record of at least five years of returns, if possible,
  • Understand if the returns are after tax and/or expenses, and
  • Review what the ratings companies have to say about a fund and its manager.