This guide explains general concepts for educational purposes. It is not financial, tax or legal advice, or a recommendation to buy, sell, hold or change a financial product or strategy. It does not take into account your objectives, financial situation or needs. Rules, caps, thresholds and product terms can change. Check the current official information and obtain advice appropriate to your circumstances before making a financial decision.
Direct ownership offers control
Buying securities directly allows the investor to choose individual holdings, transaction timing and voting decisions. It also requires research, record keeping, portfolio monitoring and disciplined diversification.
Managed structures delegate decisions
A managed fund delegates security selection and ongoing portfolio management. This can provide convenient diversification, although the investor gives up control over individual transactions and pays management costs.
A portfolio can use both
The choice does not need to be absolute. Direct securities, ETFs and managed funds can be combined when each holding has a defined role and the overall portfolio remains coherent.
Two ways to implement an investment strategy
With direct holdings, decisions about individual purchases, sales and position sizes sit with the owner or their appointed adviser under the agreed service. A managed fund makes those decisions within a pooled portfolio. Both approaches can provide exposure to similar markets, but the ownership, administration and decision-making arrangements differ.
Direct ownership can make individual transactions easier to identify. A managed fund provides statements for the holding and distributions, while the manager deals with the underlying securities. Neither structure determines whether the complete portfolio is suitably diversified.
Looking through to the underlying investments
Combining direct shares with a share fund can create overlapping exposure to the same companies. Adding another holding does not automatically add a different source of return. The combined asset mix, concentration and investment horizon explain more than the number of products held.
Cash flow and tax reporting also differ. Direct investments can pay income to the owner, while funds distribute amounts according to their arrangements. Realised gains may arise from direct sales or through a fund distribution. A comparison therefore separates the investment objective from the way ownership and transactions are administered.