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• Home / 
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• Self Managed Super Funds / 
• Running an SMSF / 
• Investment Strategy

Investment Strategy

One of the key areas of responsibility is to manage your fund’s investments. As a trustee or director of the trustee company, you have certain duties and responsibilities when making investment decisions.  

It is a requirement for trustees to prepare and implement an investment strategy for your fund, and review it regularly. The strategy needs to reflect the purpose and circumstances of your fund and consider:

• how to invest in a way to maximise member returns taking into account the risk associated with the fund’s investment(s);
• diversification and the benefits of investing across a number of asset classes (for example, shares, property and fixed deposit) in a long-term investment strategy
• the ability of your fund to pay benefits as members retire and pay other costs incurred by your fund
• the needs of members (for example, age, income level, employment pattern and retirement needs).

The Fund’s investment strategy should set out your investment objectives and detail the investment methods you’ll adopt to achieve these objectives.

You need to make sure all investment decisions are made according to the investment strategy of your fund.  Outlook can provide trustees with investment advice, the formulation of the fund’s investment strategy and a regular review process.

In thinking about investments within your Self Managed Super Fund, there are a range of specific rules and restrictions that need to be considered, including:

• Restrictions
• Securing the assets of your fund
• Loans or financial assistance to members (or a relative of the member)
• Borrowings
• Acquisition of assets from members (or a related party)
• In-house Assets (including transitional arrangements)
• Maintaining investments on an arms-length basis
• Investing in business real property

Restrictions

Super laws place restrictions on the types of entities your fund can invest in or with, and the entities that your fund can acquire assets from.  Investment restrictions exist because they protect fund members by making sure fund assets are not exposed to undue risks, like a business failing.

Securing the assets of your fund

You need to ensure that your fund’s ownership of its investments is secure. Your fund’s assets should be held in a legally recognised ownership arrangement, reflecting either:

• the names of all of the individual trustees as trustees for your fund; or
• the name of the company as trustee for your fund in the case of a corporate trustee.

Loans or financial help to members or a member’s relative

You can’t lend money or provide direct or indirect financial help (including the provision of credit) from your fund, to a member, or a member’s relative. For example, using fund assets to guarantee a personal loan would contravene this investment restriction.

A member or a member’s relative means any of the following:

• a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of that individual or of his or her spouse
• a spouse of that individual or of any individual specified above.

Borrowings

You can only borrow money in very limited circumstances. The circumstances include:

• borrowing money for a maximum of 90 days to meet benefit payments due to members or to meet an outstanding surcharge liability. The borrowings can’t exceed 10% of your fund’s total assets
• borrowing money for a maximum of seven days to cover the settlement of security transactions if the borrowing does not exceed 10% of your fund’s total assets. You can only borrow to settle security transactions if at the time the transaction was entered into it was likely that the borrowing would not be needed
• borrowing, using instalment warrants or instalment warrant like arrangements that meet certain conditions.

Click here for further information regarding gearing in super.

Acquisition of assets from a related party

You can’t acquire assets for your fund from a related party of your fund. However, there are limited exceptions to this rule where:

• the asset is a listed security (for example, shares, units or bonds listed on an approved stock exchange) and the asset is acquired at market value
• the asset is business real property and acquired at market value
• the asset is an in-house asset, but the level of your fund’s in-house assets does not exceed the threshold for SMSFs of a maximum 5% of total fund assets, or is an asset specifically excluded from being an in-house asset.

A related party of a fund covers all members of your fund and associates, and all standard employer-sponsors of your fund and their associates.  An associate of a particular member of an SMSF includes the following:

• every other member of your fund
• the relatives of each member
• the business partners of each member
• any spouse or child of those business partners, any company a member (or the members and/or their associates) controls or influences and any trust the member (or the members and/or their associates) controls.

Associates of standard employer-sponsors include business partners and companies or trusts the employer controls (either alone or with their other associates), or companies and trusts that control the employer.  A standard employer-sponsor is an employer who contributes to a super fund for the benefit of a member, under an arrangement between the employer and the trustee of a fund.

Business real property generally relates to land and buildings used wholly and exclusively in a business.  If business real property is used in a primary production business, such as a farm, it can still meet the test of being used wholly and exclusively in a business, if an area of land, no more than two hectares, contains a dwelling that is used for private or domestic purposes. However, the main use of the whole property can’t be for domestic or private purposes.

Outlook can provide specialist advice regarding the transferring of assets into your SMSF.

In-house assets

An in-house asset is a loan to, or an investment in a related party of your fund, or an investment in a related trust of your fund. An asset of your fund that is leased to a related party is also an in-house asset. In general, as a trustee you are restricted from lending to, investing in or leasing to a related party of your fund more than 5% of your fund’s total assets.

There are some exceptions, including for business real property that is subject to a lease between your fund and a related party of your fund. There is a limited exemption for certain investments in related non-geared trusts or companies.

Special investment rules

Special investment rules may apply to investments made by funds before 11 August 1999. However, the transition period for in-house asset rules applying to such investments are due to expire on 30 June 2009.

If your fund was established before this date and has assets acquired under the rules applying before then, contact us or your adviser for more information.

Investments need to be made and maintained at arm’s-length

Any time your SMSF makes an investment, it needs to be made and maintained on a strict commercial basis. This is referred to as an investment at arm’s-length. The purchase and sale price of fund assets should always reflect a true market value for the asset.

Income from assets held by your fund should always reflect a true market rate of return.

Investing in business real property

You need to ensure the level of investment in business real property still meets the investment strategy of your fund, including diversification of assets, liquidity and maximisation of member returns in your fund.  A fund with 100% investment of assets in business real property could have some problems meeting these requirements. 

As with other super fund investments there can’t be a charge over an asset (that is a loan or covenant).  There are however limited circumstances, using an instalment warrant where the fund could borrow and have a charge over the asset.  Refer to gearing in super for further information.

Contact us to discuss how we can work with you to formulate your fund's investment strategy and meet your retirement goals.