Australians can make superannuation contributions either to an independently managed super fund or they can manage their own super fund. The super funds that we manage on our own are called ‘Self Managed Super Funds’ (SMSF) or ‘Do It Yourself Super Funds’ (DIY super funds). The DIY funds are regulated by Australian Taxation Office.. There are certain cases where it can be regulated by the Australian Prudential Regulation Authority. The popularity of these funds is on a rise. It has been reported that approximately 2600+ new funds are being created every month.

Who Is Who In A DIY Super Fund

Trustees: The members of a super fund are called Trustees. A DIY super fund can have only a maximum of 4 trustees.

Trustees are ultimately responsible for the running of the super fund. Trustees should be aware of everything that happens in the fund - all the transactions, legislations relating to super funds etc…If something goes wrong then trustees are the ones who are held responsible and penalties might apply.

Auditors: Every year (for as long as the fund exists) trustees have to get their DIY super fund audited by an approved auditor. The auditor will help the trustees in ensuring that they are following all the legislative requirements.

Accountants: They help the trustees to maintain a record of every transaction that happens in the fund. All the documentation also has to be stored for a few years.

Tax Agents: Every financial year an income tax return has to filed for the fund - and this is where the tax agents come into play.

In a lot of self managed funds, the same person/company perform the tax agents’ and the accountants’ role.

Financial Advisers: Trustees can seek external help from an investment adviser in formulating the fund’s investment strategies…Or they can choose to do it themselves…

So Can Anyone Start A DIY Super Fund

Well you can…But if you start one without making sure that it can be worth your while then you are in far some serious financial trouble… There are main factors which should influence your decision:

Cost Factor: It is estimated that running expenses for a DIY Super Fund comes to around $1000 to $1500 or upwards…So if you start a super fund with just $10,000 initial investment then you are spending around 10% of the fund’s investment towards running expenses…Now that is just way too expensive. FIDO (Australian Securities & Investments Commission) recommends that you have atleast $200,000 to $250,000 towards initial investment. Anything less - give DIY super funds a miss and pick an independently managed super fund.

Knowledge Factor: You need to have some understanding of financial markets, investment strategies…A complete lack of knowledge or complete lack of interest in this field will not help you (if you want to start a DIY super fund).

Discipline Factor: If you are not disciplined, don’t understand/fulfill your responsibilities or don’t have the time then DIY super funds are definitely not for you.

A Few Important Responsibilities

Benefits Only For Retirement: ATO states clearly - “It’s Your Money But Not Yet”. All benefits from your investments will have to be enjoyed only in retirement. All investment decisions must be made with the sole purpose of enjoying the benefits only in retirement. For example: If you buy a super market’s shares for the fund with a hidden agenda of profiting from the discounts the supermarket offers to all its shareholders then you are in the wrong - in this case some of the benefits (discounts) are being enjoyed prior to your retirement.

Investment Strategy: Maintain an investment strategy and review it periodically. If you wish you can also some external help in this area. If it was me I would only seek independent financial consultants and not consultants who are affiliated to banks and investment houses.

Records: Keep all records and paperwork for all transactions. Keep it safe for atleast 10 years.

Assets and Market Value: If you are transferring assets from your personal account to super then make sure its all done at market value. If you are transferring property get it independently valued and transfer only at the valuation price. If you do it for less than market value, the alarm bells will go off at ATO - ATO might think you are doing this to get over the super contribution limit.

Changing Legislations: The legislations will change and have been changing frequently…Trustees need to keep themselves informed of all the changes.

External Investments and Outsourcing

There are lots of companies to whom you can outsource all the administration and management of your super fund. These external companies only act as a back office and can take care of your paper work. You as a trustee will still be responsible for all investment decisions.

If you have cash in your super portfolio then consider the high interest DIY accounts being offered by many banks and investment houses.

Some investment banks now offer gearing products that allow you to gear into residential property…Good but exercise with caution…All gearing is risky…So do careful analysis before you decide to jump into it.

Finally beware of financial scams before you invest - study the return and the risk involved…This is after all an important decision which will affect your retirement lifestyle…

Do you have a DIY Super fund or are you planning to start one…Share your thoughts.

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