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The Beginner’s Guide To The Self-Managed Superannuation Fund

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September 13, 2021

A self-managed superannuation fund or an SMSF is a privately-owned super fund that you can manage yourself as a trustee. And in Australia, an SMSF trustee can have complete control of the overall direction of the self-funded superannuation setup. If the fund is shared, there can be multiple trustees too. ‘Complete control’ means the trustees can determine when and how to make suitable investments for the fund, which can be very beneficial for the future.

Before we move on to further discussion, here are some crucial aspects related to SMSF that you need to know.

Risks And Responsibilities Of Managing An SMSF

Regardless of the number of members present within a fund, everyone will be responsible for the decisions and compliance with the law. Setting up a self managed super fund will lead to the following risks and responsibilities.

  • You will be personally liable for every decision. The condition applies even if you consult any professional.
  • As per law, you can decide on investments, but those investments may not bring you the returns as expected.
  • Even if there is any change in the circumstances, like losing a job, you will be held responsible for the fund management.
  • If there is a decline in the relationship between members, or if someone becomes seriously ill or dies, your SMSF can be badly affected.
  • If a theft or fraud results in loss of money, you cannot access any special compensation scheme.
  • If you move from a retail super fund to a self-managed superannuation fund, you may lose your insurance.

Why Should You Need An Investment Strategy?

Having a structured investment strategy can bring the expected return and help avoid those risks, as mentioned above. As per the Australian Taxation Office law, trustees of the self-managed superannuation fund need to follow this investment strategy and review it regularly. Failing to adhere to this law can result in penalties.

A Step-By-Step Guide To An SMSF Investment Strategy

Designing a productive investment strategy for your SMSF setup can be a long process. Here we present a detailed guide to it.

Step-1: Know The Legal Requirements

The investment strategy should meet all the requirements and consider the following.

  • Risk and return associated with fund investments, which include cash flow requirements
  • Fund investment diversification
  • Fund investment liquidity
  • Whether the trustees must have insurance for the members or not
  • Whether the SMSF can fulfil its liabilities

By liquidity of fund investments, we mean how fast you can convert those investments into cash. It also includes the cash flow requirements. A crucial legal requirement is the strategy document review at least once a year.

Step-2: Understand Risks And The Return Trade-Off

For different investments, risks are different. Whenever the return is possibly higher, the associated risks will also be much higher. That is why it is crucial to understand the nature of the risk. If your retirement is near or you have retired just a few months back, you can go for low-risk investments. On the other hand, you can take risks if you still have 15-20 years left in your service.

Step-3: Diversify The Investments

While making multiple investments, it will not be a good idea to put a large sum of your money in only one investment. This strategy is called diversification, and it will help you maintain a decent performance for your fund even if one of the investments performs poorly. Industry experts always advise having a range of investment options in the portfolio.

Step-4: The SMSF Should Have Sufficient Liquid Assets For The Situation

By liquidity, we mean how easily you can turn your asset or investment into cash. Cash is the most liquid asset you can use for various SMSF liabilities and expenses like audit fees, annual fees, tax, bank fees, and pension payments.

In addition, there are illiquid assets too. One such example is real estate, which will take considerable time to be sold and bring you cash. You should check whether your fund has sufficient liquid assets to cover the probable costs in your SMSF investment strategy.

Step-5: Decide On The Insurance

Deciding on insurance is a vital part of the investment strategy, and you have to consider it for yourself, either outside or inside the fund.

Your SMSF can offer its members insurance for the following situations.

  • Death
  • If someone cannot work permanently or temporarily
  • A terminal health condition

Whatever decision you make should be included in the investment strategy. However, note that you cannot offer your fund member any trauma insurance.

Step-6: Get Help From An SMSF Accounting Service

Consulting top-rated SMSF accounting services can be of great help. For any help, you can ask for an investment strategy template. It will help you develop your investment strategy while satisfying the legal and tax obligations.


Managing a super fund on your own can be stressful at times. Leading SMSF auditors from Perth can help you maintain your legal compliance through annual audit works.

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