With the recent stock market nosedive, there may be some industry superfund members in shock when reviewing their super fund balances. Retail or industry super funds do not offer a lot of control in investment decision making and this may be a frustration to some members during stock market falls. Not only that, but there has been growing concern that many super funds are investing in illiquid assets which cannot be easily redeemed. Some investors are now turning towards using a Self Managed Super Fund (SMSF). These are the six major benefits of setting up your own SMSF.
1.Control of investments
With an industry or retail super fund, there is little transparency or control over the selection of investments. With an SMSF, the trustees are responsible for all investment decisions. This allows more control over the selection of asset classes and the timing of investments. Industry super fund members have no control over decisions. So when the market is sinking, some fund members may be more comfortable holding more cash, but they are unable to do anything about this if this is not part of the funds mandate.
When you pass away, the SMSF can still continue – your spouse and even your children can still receive the benefits. In a super fund, unless there is a death benefit nomination, the trustee of a superannuation fund can pay the balance to an estate, spouse or dependant.
There are also tax implications of managed funds as capital gains and losses are pooled together. However, in direct share investments, you can offset your losses against your capital gains to reduce your tax payable. You are also able to use the franking credits from dividends to reduce your tax payable with direct share investments in an SMSF. Contributions and income of the fund are taxed at the concessional tax rate of 15%. Income of the fund is generally tax free once a pension is paid.
In the event of bankruptcy, funds which are held within a SMSF will not be accessible to creditors.
5.Investing in multiple asset classes
In a super industry fund, you are only able to invest the asset class of the fund’s choice. In an SMSF you can invest in residential or commercial property, cash and term deposits, fixed income products, physical commodities and collectables.
You can consolidate multiple members into one SMSF. You can have up to 4 members so you can consolidate four individual super funds into one fund and only one SMSF fee is paid as opposed to four different individual super fund fees.
Lauren Hua is a private client adviser at Fairmont Equities.
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