Investing in index funds and ETFs through your super
Some Industry SuperFunds enable their members to buy shares, index funds or Exchange Traded Funds (ETFs).
What is an index fund?
Relatively new but hugely popular, Australian and international index funds offer access to a portfolio of shares designed to follow a particular stock market index. The index could be the ASX 200, or an index of the world’s top technology companies, or the 20 biggest companies in Asia or US.
Because they closely reflect a particular category, these funds follow the highs and lows of that sector.
In most cases, the funds are passively managed and simply follow the index they’re related to, so fees tend to be lower as fund managers aren’t actively trading to beat the market.
Why is index fund investing so popular?
Most investors are attracted to the low fees and ease-of-purchase, as well as the diversity an index fund can offer so they can potentially present a lower risk. And because they’re made up of shares in a particular category, index fund performance reflects the index they follow, and can even provide returns in the form of dividends.
However, remember that investment decisions made in these kinds of accounts carry their own level of investment and market risk.
Why buy them through super?
Index funds are traded on the stock exchange, which means you can sell them for a profit, just like any other share. And like shares, your profits can attract Capital Gains Tax (CGT). The good news is, if you take a long-term view and buy and sell your index funds through your super, your CGT rate will only be up to 15%, unlike the CGT you’d pay if you bought them directly – which is calculated at your marginal tax rate and can be as high as 45%.