Managed Investment Schemes: What and When to Be Cautious
Managed investment schemes (MIS) have become a popular investment vehicle in Australia, attracting both seasoned and first-time investors. From property syndicates and agribusiness schemes to managed funds and cryptocurrency ventures, these structures promise collective investing with professional management. But what exactly is a managed investment scheme—and should you trust one?
In this article, we explain how MISs work under Australian Financial Services and Tax Law, highlight potential risks, and help you make informed decisions about whether an MIS aligns with your financial goals.
What is a Managed Investment Scheme?
Under Section 9 of the Corporations Act 2001 (Cth), a Managed Investment Scheme is defined as an arrangement where:
People contribute money (or assets) to acquire rights in a collective investment.
Contributions are pooled or used in a common enterprise to produce financial benefits.
The day-to-day control is handled by someone other than the investors.
Examples of managed investment schemes in Australia include:
Real estate investment trusts (REITs)
Infrastructure funds
Agricultural schemes (e.g. timber or olives)
Crypto asset investment schemes
Equity or bond pooled funds
How Are MISs Regulated?
MISs in Australia are regulated by the Australian Securities and Investments Commission (ASIC). A scheme must be registered with ASIC if it has more than 20 members or is promoted to retail investors.
The Responsible Entity must:
Hold an Australian Financial Services Licence (AFSL)
Operate the scheme in accordance with its constitution and compliance plan
Act honestly and in the best interests of members
Disclose fees, risks, and performance transparently
Additionally, taxation of MISs is governed by Australian Taxation Office (ATO) rulings. Often, schemes are structured as trusts, with income flowing through to investors who then declare earnings in their tax returns.
Benefits of Managed Investment Schemes
For many Australians, MISs provide access to investment opportunities that may otherwise be inaccessible or unaffordable. Key benefits include:
Diversification: Pooled investments allow exposure to varied assets (e.g. shares, property, fixed income).
Professional management: Schemes are managed by experts who understand markets and compliance.
Ease of entry: Often accessible to retail investors with lower minimum contributions.
Regulatory oversight: ASIC imposes strict registration, compliance, and disclosure obligations.
When to Be Cautious: Risks and Red Flags
Despite their appeal, not all MISs are trustworthy or successful. Some schemes have collapsed due to mismanagement, poor asset selection, or outright fraud. High-profile collapses like Great Southern and Timbercorp serve as cautionary tales.
Common risks include:
Lack of liquidity: Unlike shares, many schemes restrict access to funds. Exiting may be difficult or delayed.
High fees: Management and performance fees can erode your returns—always read the Product Disclosure Statement (PDS).
Poor transparency: If a scheme lacks clear reporting or communication, this could signal mismanagement.
Aggressive marketing: Be wary of schemes offering "guaranteed returns" or using high-pressure sales tactics.
Unregistered or offshore schemes: Avoid schemes that aren’t registered with ASIC or operate from unknown jurisdictions.
You can verify the status of a scheme or Responsible Entity through the ASIC Register or consult a lawyer before committing funds.
Legal Protections and Your Rights
Under Financial Services and Tax Law, investors have several protections:
Cooling-off periods (typically 14 days for retail investors)
Right to receive periodic reports and scheme financials
Access to external dispute resolution through the Australian Financial Complaints Authority (AFCA)
Remedies through the courts in cases of misrepresentation, breach of fiduciary duty, or negligence
If you're unsure about a scheme's legitimacy, consult ASIC's Moneysmart site for warnings and updates.
Tax Considerations
Most managed investment schemes distribute income to investors based on their share in the scheme. This may include:
Dividends
Capital gains
Interest income
Depending on the nature of the scheme and your personal tax situation, you may need to declare:
Trust distributions
Foreign income (if offshore assets are involved)
Tax-deferred components
Refer to the ATO’s guidance on investment income, or seek advice from a tax lawyer or accountant to avoid errors or penalties.
Should You Trust a Managed Investment Scheme?
The answer depends on your investment goals, risk tolerance, and due diligence. Managed investment schemes can be reliable and lucrative—if properly vetted and legally compliant. However, without understanding the structure and obligations, you could expose yourself to unnecessary risks.
Ask yourself:
Is the scheme registered and regulated?
Is the Responsible Entity licensed and reputable?
Are the investment strategy, fees, and exit terms clear?
Have you obtained legal and financial advice?
Managed investment schemes are a vital part of Australia’s financial ecosystem, offering flexible ways to invest in property, equities, and niche sectors. But like any financial product, they’re not risk-free. Relying on regulation alone isn’t enough—education and advice are critical.
At New South Lawyers, our Financial Services and Tax Law team provides expert guidance to ensure your investment decisions are legally sound and tax-effective. We’ll review scheme documentation, explain your rights, and help you avoid high-risk traps.
