Issue 25: Understanding investment product structures (Part 1)


Issue 25: Understanding investment product structures (Part 1)

Reflecting on the history of the ASX, may seem an unusual way to start a discussion on investment product structures, however the history of ASX has also been transformational in delivering the range of investment products ASX now offers Australian investors.

Once, the primary reason sharemarkets existed was to facilitate the formation of capital. Individuals or businesses wishing to raise capital would use the services of a broker to engage with investors to become part owners or equity holders in the enterprise by providing funding. This is referred as an Initial Public Offer (IPO) and it is considered a ‘primary market’ activity.

For investors wishing to sell some or all of their interest (share) in the enterprise at a future date, the ‘secondary market’ provides the ability for trading of those interests ‘on-market’ at a price agreed between existing investors with those wishing to sell or increase their holding. This is where a lot of attention is focused, almost on a daily basis, and it is where investors now have access to a growing range of investment products.

However, it’s important to know that not all investments available on ASX are listed and the rules between them vary in terms of how they are admitted and operate. This why it is also important to understand the characteristics of different product structures and what this may mean in terms of outcomes.

But first, a short history of how we came to be where we are and how the benefits that an exchange, such as ASX can provide to investors by way of choice from a range of investment options and structures.

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  • Strength indicator

In the upcoming instalments of the SMSF Connect Investment Series, we will step through some of these characteristics.

As a starting point before we do, you may care to take the first two and consider which type of asset class, such as Australian equities and structure would be appropriate for you – a closed-end company/trust or an open-end unit trust?

As always, if you need help, please talk with an accredited SMSF Specialist in your area, click here to use SMSF Connect’s Find a Specialist tool.

Missed an Issue? Catch up on all articles from the SMSF Connect Investment Series below:

Ian Irvine - Guest Contributor

Ian has been a keen investor for over 40 years and can draw on his experiences from both investing on his own behalf and also having worked in financial services for more than 30 years. Over this time, he has seen many changes that impact investors’ attitudes to in what and how they invest.

He started his career in what is now referred to as fast moving consumer goods (FMCG) or grocery, working for an Australian margarine manufacturer. In 1986, he was recruited to Westpac around the time of deregulation of the sector, where he spent 10 years before taking a role at AMP and then with ASX for 14 years up to the end of 2017. He continues to be involved with ASX; working on their educational programs.

In 1996, he and his wife established their own SMSF and again the experience and lessons learned regarding managing an SMSF over the years have provided him with many insights and ideas. He enjoys sharing these with others where these are helpful and always suggest that if an investor or SMSF trustee is unsure, that they should seek appropriate advice from a licenced professional.

Ian holds a B. Com (UNSW), and lives in Sydney and enjoys travelling to and meeting investors and SMSF trustee at the educational events with which he has involvement with from time to time.