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Why are SMSFs so popular?

Many people ask why are SMSFs so popular?

‘The sole purpose of superannuation — and why it gets favourable tax treatment— is to fund a retirement.’

Being able to control how super is invested

This is a big selling point for self-managed super funds. At least close to one million Australians think so given there’s more than half a million SMSFs looking after retirement nest eggs.

Self-managed funds perform the same role as any other super fund, by investing contributions and making them available to members on retirement. The Australian Taxation Office also regulates them. The difference is fund members are also the trustees.

So why are SMSFs so popular?

The main appeal is their ability to invest in a broad range of investments. These range from shares, managed funds, direct property, high interest cash savings, term deposits and gold, for example. The upside to an SMSF is that you decide what to invest in and when benefits are paid. The downside is running them requires much more work, though it helps that they’ve become more cost-competitive. Having said that, SMSFs are still popular.

Some of the reasons to establish SMSFs include:

  • Greater control of investments
  • More flexibility and choice
  • Better tax-planning opportunities
  • Better investment performance of assets
  • Greater cost savings vs other super funds

When you compare superannuation assets overall — $3.0 trillion as at December 2019— it is impressive that individuals running popular SMSFs control $742 billion (25%) of all super assets invested.

So if you want to get your foot in the self-managed fund door, it’s good to know that costs involved in administering SMSFs have come down. They are much more accessible, especially for 30-and-40-year-olds. Previously this group felt locked out due to the big balances they felt they needed to make setting them up worthwhile.

What are the costs for popular SMSFs?

Some industry and retail funds charge up to 6 per cent to run a SMSF. And some providers charge up to $10,000 a year to administer a self-managed fund.

ASIC also publish a guide to self managed super funds too.

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