Investors - What are the most common types of investments?

What is a share?

What is a debenture?

What is a managed investment scheme?

The most common types of investments are shares, unlisted investments (such as debentures) and managed funds (also known as managed investment schemes). 

What is a share?

One way of investing your money is by buying company shares which gives you part ownership of a business. Your return is a share in the profits by way of dividends and/or capital growth if the value of your shares increases over time.

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What is a debenture?

A debenture is a promise made by an entity to repay money that has been lent to the entity. That is, an investor provides loan funds to the issuer, and in return the person borrowing the funds (the issuer) issues a debenture with a promise to pay a rate of interest (usually fixed) for a defined term, and then repay the loan.

Debentures may also be referred to as unsecured notes and may be listed on the stock exchange or unlisted. Funds invested with a debenture or unsecured note issuer are commonly on loaned to other borrowers pursuant to a mortgage and used by the end borrower for activities including finance, debt capital funding, integrated property, memberships, mortgage financing, structured real estate investments. Unlisted debenture and unsecured notes are required by ASIC to comply with Regulatory Guide 69 and report against eight benchmarks. They are also required to disclose to investors whether they are credit rated, that "investors risk losing some or all of their principal investment" and they are not a bank deposit.

Debenture products must have a prospectus. The prospectus will tell you how the investment works including everything you need to know about the issuer, what they will do with your money, and the terms of the investment. You should read the most recent prospectus which can be obtained from your investment company or their website.

For more information download MoneySmart: Unlisted debenture and unsecured notes 

What is a managed investment scheme?

A managed investment scheme arises when:

  • your money is pooled or used together with money from other investors to buy shares or some other kind of assets or to operate a business
  • you get an interest in the scheme (interests in a scheme are a type of financial product and are regulated by the Corporations Act). In almost all cases, instead of shares you get units or other rights in the scheme. The number of units you receive depends on how much you invest in the scheme
  • a professional investment manager operates the scheme. You do not have day to day control over the operation of the scheme. The investment manager may be called a fund manager or other term. The operator of a managed investment scheme registered by ASIC is the 'responsible entity'.

You will find managed investment schemes referred to by many different names. Other terms you may come across are managed funds, unit trusts, managed trusts, investment trusts, pooled funds, collective investments and investment funds. Specific examples of managed investment schemes include premium income funds, time share schemes, forestry schemes, unlisted property trusts, mortgage funds and Australian equity (share) trusts.

Managed investment schemes must have a product disclosure statement (PDS) to raise money from retail investors. The PDS tells you how the managed investment scheme works and must include enough detail for you to make an informed decision about where to invest.

Managed investment schemes must also have a constitution, which sets out the rules and regulations of how the scheme is to operate. It also sets out your rights as a member of the scheme. You can read your scheme's constitution which can be obtained from your investment manager or usually their website.

For more information go to MoneySmart: Managed funds

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Last updated: 23/03/2016 03:13