Major Benefits of a Self-Managed Superannuation Fund

In the past decade, over 1.1 million Australians have made the switch to a self-managed superannuation fund (SMSF), but what exactly is it?

An SMSF is a superannuation fund that allows you to manage and invest your savings on your own. Some of the main reasons people choose this option are greater control, lower fees, and higher yields. And with this in mind, it’s worth taking a closer look at the major benefits of SMSFs.

Greater control over investments

As you might know, regular superannuation funds are capital investments managed on your behalf. While it does enable fund managers to invest in shares, fixed interest, and retail, it does have its limitations. Mainly, you have less control over where and how the investments are distributed.

On the other hand, self-managed superannuation funds are different. Besides allowing you to invest in standard assets, you can also invest in derivatives, direct property investments, gold, and other commodities, or items of value such as works of art.

Additionally, setting up a self-managed fund allows you to redirect the capital within the fund for further investment. In turn, this gives you greater flexibility.

More flexibility with investments

As an SMSF member, you have an active role when planning your investments and greater maneuverability on the market. Flexibility allows you to monitor market activity, and if necessary, buy and sell assets and adjust your investments portfolio to meet the current market climate.

Less risk in business

You can also use the hands-on approach of SMSFs when investing funds to minimize risk and increase security at your place of business.

Say, for example, you are a small business owner. With an SMSF, you can treat your physical offices as a property investment. You can purchase the property, and protect your business assets, tenancy lease, or overcome precarious situations, like management succession.

Ability to join efforts with three other stakeholders

You don’t have to be the only investor in your SMSF. This type of superannuation fund allows you to consolidate capital with three more stakeholders. The larger fund gives you and your partners access to more and better investment opportunities, which would have otherwise been unattainable without the additional capital.

Better tax handling

The existing income tax with a normal superannuation fund in Australia is 15%. But when you opt for SMSF, you should take into that you can make your investment decisions according to their tax. Similarly, you can calculate what kind of an effect dividend imputation will have on profits after taxes.

Because you have greater control over your super, you can choose to invest in assets that support an income stream. For example, if the investment supports a pension, in this situation, there is no tax payment on those particular earnings.

Ultimately, the increased control and flexibility you receive from an SMSF also gives you the chance to calibrate different tax rates on various investments to mitigate tax liability.

Make sure you consider the risks

What it all comes down to is how much control do you want when managing your superannuation fund. And although an SMSF is a great way to take back that control, you need to be aware that it is not for everyone. 

Like any type of super fund, there are laws, regulations, and taxes in place. You will need to be compliant with all of them if you are to create a self-managed superannuation fund. 

The rewards certainly outweigh the risks, but if you are not 100% sure, it might be a good idea to seek professional consultation or wait a while until you are ready to make that leap.