Called to ac­count

Find out how your fund cal­cu­lates the value of your in­vest­ment

Money Magazine Australia - - SUPER - Vita Palestrant was the edi­tor of the Money sec­tion of The Syd­ney Morn­ing Her­ald and The Age and has won sev­eral pres­ti­gious jour­nal­ism awards here and over­seas.

How does your su­per fund cal­cu­late the dol­lar value of your ac­count bal­ance to re­flect mar­ket per­for­mance? What hap­pens when you switch in­vest­ment op­tions, change to a new provider or go into pen­sion mode? Un­der­stand­ing how pric­ing works can be use­ful.

To cal­cu­late and up­date the chang­ing value of your in­vest­ment op­tion, su­per funds use one of two meth­ods: unit pric­ing or cred­it­ing rates. While in­dus­try funds have long used cred­it­ing rates, many have now switched to unit pric­ing – the pre­ferred method of re­tail funds.

At its most ba­sic level, unit prices give you a snap­shot of what your su­per is worth at a spe­cific point in time.

“It’s much the same as what hap­pens with share prices,” says Philip La Greca, ex­ec­u­tive man­ager, SMSF tech­ni­cal and strate­gic so­lu­tions, at Su­perCon­cepts. “It’s ba­si­cally say­ing the un­der­ly­ing as­sets of a com­pany are worth X amount, di­vided up based on how many peo­ple own a bit of the com­pany and how many bits you own. It’s the same with unit pric­ing. You look at the un­der­ly­ing net as­sets of the trust and di­vide it by the num­ber of units on is­sue.”

Unit prices move around, re­flect­ing the per­for­mance of their un­der­ly­ing as­sets. When they go up your units in­crease in value; when they hit neg­a­tive ter­ri­tory the unit prices drop.

“If the fund goes up by 10%, your units go from $1 to $1.10. If the as­sets go down by the same amount, it’s 90¢ per unit,” says Alex Dun­nin, re­search di­rec­tor at Rain­maker.

Cred­it­ing rates – or in­vest­ment re­turns – work in a sim­i­lar fash­ion, re­flect­ing changes in in­vest­ment mar­kets and as­set val­ues, he says. “When peo­ple talk about cred­it­ing rates they are say­ing this is the re­turn you get after fees and tax and that should be what gets put into your ac­count. There’s a view that unit pric­ing is a cleaner, more ro­bust way of work­ing out how much your in­vest­ment is worth.

“Iron­i­cally, cred­it­ing uses the same method­ol­ogy. It cal­cu­lates things in the same way be­cause it’s done on a unit struc­ture but it’s not as locked down.

“The fund has a sin­gle pool of as­sets and the fund ad­min­is­tra­tor tries to work out what your share of that is worth. It all comes down to how strong the sys­tem is. Just be­cause it’s unit priced doesn’t mean it’s any more re­li­able than cred­it­ing rates.”

An­other as­pect of pric­ing is the dif­fer­ence be­tween the “buy” unit price and the “sell” unit price. This is the buy/sell spread.

When your money goes into su­per, the buy unit price ap­plies. When money comes out of your ac­count – ei­ther to pay for in­sur­ance pre­mi­ums, fees and tax, or to switch in­vest­ment op­tions or provider – the sell unit price is used.

“Some­times if things don’t seem to make sense, it’s be­cause there’s em­bed­ded bro­ker­age, what the fund calls the buy/sell spread. If you swap all your money from one in­vest­ment op­tion to an­other, there’s go­ing to be some sort of trans­ac­tion cost,” says Dun­nin.

“It might be the fund is say­ing, ‘Alex, your units are worth $1.10 but there’s a buy and sell spread of 3%.’ The fund is say­ing to give you your money back, there’s a bro­ker­age fee, so you will get $1.10 a unit, less 3%.”

What hap­pens when you switch to pen­sion phase?

“If you stay in the same prod­uct with the same provider there should be no or min­i­mal fees. What you are do­ing is sim­ply turn­ing on the in­come stream switch. But if you get your lump sum and take it else­where, you might find you have trans­ac­tion fees,” he says.

To get the most out of your su­per fund, go onto its web­site to find out how it cal­cu­lates your ac­count bal­ance.

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