Mutual funds are coming to Australia, but could their biggest audience be elsewhere?

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September 28 2021
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Even if they’re not the target audience, local investors will have a new option to consider when mutual funds arrive in Australia next year.

Mutual funds are coming to Australia, but could their biggest audience be elsewhere?

As the government moves to introduce mutual funds into Australia’s financial ecosystem, there are a few things that potential investors will want to keep in mind.

Super Central executive consultant Michael Hallinan explained that by introducing mutual funds into Australia, the federal government isn’t solely considering the needs and wants of local investors.

While adding another item to the menu for the growing legion of self-managed super funds is part of the story, the other big aim here is to lure the addition of foreign investment into the Australian economy via a more familiar investment vehicle.

Mutual funds are structured as listed companies in many overseas countries, but their Australian equivalents are more often as unit trusts. The hope here is that by allowing mutual funds into Australia’s financial ecosystem, foreign investors will be more open to the idea of putting their funds in the local economy.

That sentiment applies just as much for a mutual fund looking to invest locally as it does those eyeing up the economies of other countries in the region. Either way, Australia’s broader fund landscape is poised to reap the benefits.

“In short, the government hopes to expand the Australian funds management industry by encouraging overseas investors to use the services of the local funds management industry whether to invest locally or to invest in Southeast Asia,” Mr Hallinan said.

While being structured as a company rather than a unit trust doesn’t offer any major regulatory or tax benefits aside from the simpler regulatory structure involved, Mr Hallinan expects their arrival to be of particular interest to self-managed super funds.

He said local SMSFs will have the opportunity to invest by means of mutual funds in addition to — or as an alternative to — investing in other unit trusts.

Mutual funds are able to carry forward under and overestimates of tax into the financial year in which the under or overestimate is identified without adverse tax consequences, plus they can also be treated as fixed entitlement entities.

“This is important as the investors are treated as having a fixed entitlement to income and capital and the trust or mutual fund has to satisfy less onerous conditions to carry forward and deduct tax losses and enables imputation credits to flow to investors,” Mr Hallinan explained.

Even if mutual funds may not be materially different when it comes to how they’re treated relative to unit trusts, they may offer investors in some circumstances the ability to eliminate double taxation that may otherwise arise.

Mr Hallinan said that while two exposure drafts detailing the bill allowing for the introduction of mutual funds into Australia have been released for public comment, important questions about the arrival of the investment vehicle remain unanswered.

“What has not been released so far is a bill dealing consequential and transitional issues which will arise from the introduction of mutual funds in the Australian investment landscape,” he said.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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