What is a managed investment scheme?
What is a managed investment scheme?
A managed investment scheme is a legal arrangement that enables investors to pool their funds together to invest in assets such as shares or real estate. In return for the money contributed to the managed investment scheme, each investor has an interest in the scheme to receive the benefits or proceeds generated from the investments.
Managed investment schemes are regulated under the Corporations Act 2001 (Cth) (the Corporations Act).
Key elements of a managed investment scheme
A managed investment scheme has the following elements:
Scheme: there must be a “scheme” – a program or plan of action for a defined purpose. The establishment of a scheme can be shown by a constitutional document such as a trust deed.
Contribution: investors must contribute money or money’s worth which will then be pooled together, or used in a common enterprise, to generate returns for the investors.
Interests in the scheme: in return for the contribution of money or money’s worth, investors receive rights to the proceeds or benefits generated by the scheme.
No day-to-day control: the investors must not have any direct management control of the scheme’s day-to-day operation.
A time-sharing scheme is also treated as a managed investment scheme under the Corporations Act.
Arrangements that are not managed investment schemes
The Corporations Act specifically excludes the following arrangements from being a managed investment scheme:
a partnership with more than 20 members that does not need to be incorporated or formed under an Australian law due to regulations made under s 115 of the Corporations Act. As of the date of this article, this includes partnerships of up to 50 medical practitioners, sharebrokers or stockbrokers, 400 lawyers, or 1,000 accountants;
a body corporate that does not operate as a time-sharing scheme;
a scheme in which all members are bodies corporate related to each other;
a franchise;
a statutory fund maintained under the Life Insurance Act 1995 (Cth);
a regulated superannuation fund, an approved deposit fund, a pooled superannuation trust or a public sector superannuation scheme;
a scheme operated by an Australian authorised deposit-taking institution (e.g. a bank) in the ordinary course of its banking business;
the issue of debentures or convertible notes by a body corporate;
a barter scheme;
a retirement village scheme operating within or outside Australia;
a scheme that is operated by a co-operative company registered under the Western Australian law on co-operatives;
a contribution plan;
the provision of a crowd-funding service; and
a scheme exempted under regulations, which includes certain types of litigation funding schemes or arrangements.
Registration and licensing
In some cases:
an Australian financial services licence (AFSL) is required for providing services in relation to a managed investment scheme (see our article here); and
a managed investment scheme must be registered with the Australian Securities and Investments Commission (see our article here).
Get in touch
Please get in touch with us if you need advice on whether a managed investment scheme is a suitable structure for raising funds, or if you need help with setting up a scheme.