Managed investment scheme
In Australia, investor can choose from a wide vvariety of investments which include managed investment schemes (MIS) and direct investment which consist of shares, debt and hybrid securities. Each investment scheme will a set of corporation act to protect its investor, as it is important to make iinvestors feel confident and secure. Iinvestors can choose the types of investments to invest in depending on their personal traits and ambition as the different investment contains different characteristic. We will dive in more on MIS, direct investment and hybrid investment together with each of their advantages and disadvantages next.
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Managed investment schemes Manage investment schemes, otherwise known as collective investment schemes, are schemes in which funds are gather from different investor to invest in a common investment, usually a high risk investment that deals with huge amount of money. Under s 9 of the corporation act 2001, a manage investment schemes consist of three elements. Investor contributes money or moneys worth, there’s a generation or intended generation of a financial return or benefit and the investor do not have day- to-day control over the use of the money.
Under s 601 EA(4) states that a registered MIS requires to have a responsible entity (RE) which would be responsible for any losses or damages from violating Ch 5c. The RE is also a trustee of the scheme. The RE also have to fulfil his duties, under the s 601 FC (1), he must act honestly, exercise a degree of care and diligence, act in the best interest of the members, treat all members equally and he can’t make use of information gathered as RE to gain improper advantage or cause detriment to members.
Under s 601 MB, Contracts is considered as voidable at the option of the investor if the MIS is found guilty of violating any of the act. The advantage of MIS is that the investment will be undertaking by a professional investment manager which could offer a better returns and risk management because of his experience and knowledge. Moreover, it can help reduce risk by diversification, it works by investing in different company, usually companies that has a negative co-relation, reducing losses if the price of one company drop. Another benefit is that it the cost is shared among the other investor.
The disadvantages of MIS is the loss of owner’s rights, allocation and uses of funds will be determine by the fund manager. Although MIS is a very lucrative piece of investment, the amount of returns will be reduce because of the cost of the fund manager, normally they will expect a ppercentage of returns from the overall earnings. Debt financing Debt financing is a type of tool companies used to raise capital through borrowing. Creditors are entitled to fixed interest pay out and will be able to get back the invested amount at the maturity date.
Debt financing are usually considered as a stable and low risk investment thus the return are lower than the others. Debt financing consist of bank finance, trade finance, debentures and private debt. Debentures is the rights to enforce a company’s undertaking to repay the debt owe as stated in s 9 or the corporation act. Section 124 of the Corporations act 2001 allow companies to issue debentures and to borrow through the use of the debentures. Deoentures can De rea011y transTer ana can De llstea on tne Australlan stock exchange (ASX).
The advantage of the form of investment is that the interest pay-out is fixed and the investor will be able to get back the amount invested at the predetermined maturity date. Lenders are place ahead of equity holder in the event of liquidation. The downside to this is that there won’t be any growth on the principle of loan because it is fixed. Unlike equity holders, creditors cant get involve in the day to day operation of the company or vote. Equity Equity financing is one of the ways a company can use to raise money through the sales of shares.
Shares consist of ordinary shares and preference shares. By buying the shares of a company, investor will also gain owinership of company, the size of the owinership will depend on the amount of shares one held. Under section 124 of the corporation act 2001, any of the company will be able to issue shares but only a ublic company will be able to offer its’ shares to the public. Disclosure document such as the prospectus, profile statement and offer information statement are required under chapter 6d of the corporation act.
The prospectus offers protection to the investor who wish to purchase shares from a company by disclosing all information. The benefits of investing in shares is the ability to collect dividends, dividends will be decided by how much the company has made. Another major benefits is the ability to make capital gain by selling shares, because shares are known to be volatile, prices may move up and down at any time, capital gain can be ade if shares is sold when it is rising. The negative side of investing in shares is that it is risky. Shares prices might crash and investor would suffer losses.
Furthermore, equity holders are ranked before bond holders when the company goes into liquidation, shares holder may or may not be able to get their money back. Hybrid securities Hybrid securities are a form of securities that combines debt and equity instruments. The most common form of hybrids is convertible bonds. Convertible bonds allows the owner to convert bonds into shares at todays price. The main advantages is that it as a fixed interest repayment like a bond, iinvestors can also choose to convert it to a shares if the company is doing well.
Making a profit from the dividend or by capital gain. The downside is that it has a low interest pay out as compared toa bond and it is ranked after bonds holder in the event of liquidation. I would invest the $10 000 into government bonds. Government bonds are consider as one of the safest investment and it will be logical to invest in it as I wanted income first and growth second. Besides, I would be able to collect the interest pay out and the invested amount at the maturity date.