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What is self-managed super fund?

John Tran
May 22, 2023
What is self-managed super fund

Self-managed Super Funds (SMSFs) can offer Australian investors greater control and more flexibility over their retirement savings. But while there are advantages to establishing an SMSF, it’s important that investors understand the potential risks of this type of investment. In this blog, we'll take a look at the pros and cons of setting up an SMSF and provide some tips for getting the most out of your SMSF.

We'll also explain the kinds of risks you should be aware of when investing in an SMSF, as well as how to minimise those risks. So whether you're considering establishing an SMSF or already have one, this blog will help you make informed decisions and ensure your retirement savings are in the best possible shape.

What is self managed super fund?

SMSFs offer members more control and flexibility over their retirement savings than traditional super funds. SMSF trustees can invest in a wide range of assets, such as shares, property, and managed funds. They are also able to choose how much money they want to contribute each year up to the concessional or non-concessional contribution caps set by the government.

Moreover, SMSFs are the ideal choice for those who want control over their retirement savings. As trustees, members have complete control over decisions made concerning their fund and its investments. The maximum number of members is six and each member must be a trustee of the fund.

The sole purpose of an SMSF is to provide retirement benefits as outlined in the Superannuation Industry (Supervision) Act 1993 (SIS Act). Members' superannuation funds are paid into the SMSF, and trustees must ensure all investments are appropriate for their risk profile. An investment strategy needs to be created that considers all members of the fund.

What are benefits of SMSF?

A self-managed super fund (SMSF) offers several benefits that other types of funds don’t, including: 

  • A SMSF is a private trust structure used to hold and manage investments, such as shares, property or cash. 
  • It provides greater control over your retirement savings by allowing you to make investment decisions for the fund yourself. 
  • You can also invest in assets that are not available through other super funds, such as direct property investments and collectables. 
  • Give you the potential to achieve higher returns on your investments. You can also have easier access to other financial strategies available through SMSF’s, such as borrowing funds for property investment and estate planning. 
  • Include having control over administration costs, more tax effective options to manage fees, and more efficient volatility management. 

Disadvantages of SMSF

Self-managed super funds (SMSFs) have some potential drawbacks that should be considered before establishing one: 

  • They may require a large up-front capital contribution, as well as ongoing contributions in order to remain viable. 
  • Members of SMSFs also need to take on more responsibility for their retirement savings than members of an APRA regulated fund
  • There are strict rules and regulations which must be followed, failure of which can lead to serious consequences for members. As well as this, the costs associated with running an SMSF such as setting up fees, legal fees, accounting fees and audit fees add to the expense of running the fund. 
  • If a member is not sufficiently knowledgeable on all aspects of the fund, professional advice is likely to be required, adding further cost to the fund. 

How to set up an SMSF? 

Setting up a Self-Managed Super Fund (SMSF) in Australia is a great way to take control of your retirement savings. It offers flexibility and the potential for greater returns, but there are also risks associated with running an SMSF. To set up an SMSF, you’ll need to determine whether it’s the best option for you, register your SMSF and establish a trust deed, appoint trustees or directors, obtain an Australian Business Number (ABN) and register for Goods and Services Tax (GST), open bank accounts, invest funds and comply with relevant legislation.

You should also consider obtaining professional advice from a financial adviser or accountant to help you understand the setting up process and ensure that your fund is compliant. Once an SMSF has been set up, trustees must comply with a range of on-going obligations, such as keeping records, preparing accounts and financial statements and submitting regular returns to the ATO. It’s important to keep up with these ongoing requirements in order to ensure the fund remains compliant. Taking control of your retirement savings with an SMSF can be a great way to achieve financial freedom in retirement, but it’s important to make sure you understand the risks and are aware of the compliance obligations before taking this step. (source: ato)

Last Words

For those looking for greater control over their retirement, SMSFs may be the perfect vehicle. With greater control comes great responsibility - it is important that you understand your obligations as a trustee before setting up an SMSF.

It is also recommended that you seek independent professional advice to ensure your investments meet the requirements of the SIS Act and protect you from any potential risks. Remember that by understanding all the obligations and responsibilities that come with setting up an SMSF, you can ensure your retirement savings are secure.

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