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Investor Education > Self Managed Super Funds > Why establish an SMSF

WHY ESTABLISH AN SMSF

Self managed super funds (SMSFs) are the largest and fastest growing super sector in Australia but before you start an SMSF, it’s important to consider the potential benefits and requirements needed.

SMSFs offer a number of features generally not available with other super options including:

  • You have direct control over where and how your super is invested according to your investment strategy.
  • You can select from a wider range of investments including all listed shares, some unlisted shares, commercial and residential property, art and collectables.
  • Your SMSF could make a larger investment in assets such as property by using cash in your fund and borrow the balance.
  • You can set up a fund for yourself and up to three other people to consolidate your super balances. This could enable you to invest in assets of higher value by pooling your funds, achieve greater planning flexibility and reduce fund costs.
  • You have more control over the timing of tax events such as starting a pension when your superannuation assets move into pension phase. You also have the option of transferring assets that you own into your SMSF.
  • You can nominate who receives your super when you pass away without having to meet some of the constraints that apply to other super arrangements.

 

  Advantage Disadvantage
You get to take more control of your super With a self managed super fund you get full control of your super and can invest the money where you choose (subject to meeting the super rules). With the control comes more responsibility. As a SMSF Trustee you need to be aware of the super rules and make sure the fund operates within the rules.
You get a lot more investment options SMSFs provide the widest choice of investments for your super including shares, managed funds, property trusts, fixed interest, direct property etc etc. You need to be capable of making these decisions and deciding at what time to be invested in which investments. You can however appoint an adviser or broker to assist you.
You get responsibility for looking after your super You are in charge but you can delegate certain functions to professionals. For example you can delegate administration to a specialist SMSF administration services provider. The penalties for not operating self managed funds correctly and within the rules are very harsh.
You can save on fees Where you have substantial amounts of super (ie usually more than $300,000) you will generally be able to run your SMSF cheaper than alternative types of super funds. Where your total superannuation is less than around $300,000, a SMSF may cost you more to run than a retail of industry super fund.
You can borrow for certain assets If your investment strategy incorporates higher risk you can now effectively gear up your super to buy assets (eg property) via certain types of loans or self funding instalments. Gearing your super may not be appropriate for you and there are additional costs associated with super borrowing.
You get transparency You will have a portfolio of investments which typically comprise cash, Australian shares, listed property trusts and some managed funds. It is very transparent and very easy to work out why it is going up or down in value. With other options investors may have a lot of choices but typically it might be a balanced risk option which has underlying fund managers managing the money and they invest in cash shares, and property trusts. It is a lot more difficult to work why it is going up or down in value.

 

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