Investment Strategies for a Self-Managed Super Fund
17 November 2023
It is common knowledge every self-managed superannuation fund (SMSF) is required to document an investment strategy. So, what is an investment strategy?
When a self-managed superannuation fund is set up, one of the primary responsibilities of the trustees is to define the purpose of the fund. The intent of the trustees, the ultimate outcome of the establishment of a fund, are directed with the writing of an investment strategy document.
Essentials of an investment strategy
As per the Australian Tax Office (ATO) guidelines, an investment strategy must:
Be in writing,
Be reviewed annually, and
Consider risk, returns, diversification, liquidity and insurance consideration for the trustees.
The investment strategy is a flexible document that can be prepared by the trustees themselves or prepared for the trustees either by financial planning advisers or accountants preparing super fund annual returns.
Necessity of an investment strategy
An investment strategy, as the name suggests, is a tool available to the trustees through which they set a direction for their retirement outcomes by documenting which assets the trustees intend to invest in, when they intend to invest, how much will be invested and the length of time the investment is for.
The document helps measure:
Material asset classes and decisions in regard to the choice of assets to invest in such as cash, fixed interest deposits, treasury bonds, real property, collectables, or digital investments.
Risk, return and diversification of the assets the trustees decide to invest in.
Liquidity needs in order for the trustees to consider the cashflow required each year as a minimum for the fund to pay its dues.
Finer details of how much to invest into each asset class through pre-determined investment ranges noted in the investment strategy for the fund.
How do you give effect to an investment strategy?
The superannuation law requires the trustees must formulate and regularly review the fund’s investment strategy.
The expectation is the trustees will not consider the investment strategy to be a set-and-forget document. It is recommended to be reviewed on an annual basis along with the financial performance statements to allow the trustees to make informed investment choices that could lead to better retirement outcomes.
What if an investment strategy is not compliant?
An annual audit of the SMSF helps identify any potential breaches to the strategy adopted. Should an investment strategy fail to address the requirements documented then the trustees are expected to resolve any issues.
By attaching a signed and dated addendum and reviewing the changes as part of the annual minutes prepared with the financial statements, an auditor will verify the investment strategy is in line with the ATO requirements annually as part of the SMSF audit. If there are any breaches, the trustees are notified via a management letter and the ATO is notified through a contravention report, should the breach be required to be reported per ATO guidelines.
Our team of experts at Unison SMSF can help clarify any further queries on investment strategies for SMSFs. Get in touch with a member of our team today.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the thought or position of Unison SMSF. This document contains general information and is not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.
By Kiran Earanti
Senior Auditor
