Can Self-Managed Super Funds trade shares? Are there any restrictions?

By Stephen Karpin, managing director of CommSec 

Question:

Can Self-Managed Super Funds trade shares? Are there any restrictions?

Response:

Self-Managed Super Funds (SMSFs) are the fastest growing area of the superannuation industry in Australia. This is because they offer a range of possible advantages over other super funds, including greater control over how their assets are invested, ability to manage tax outcomes and potentially reduce costs.

A Self-Managed Super Fund will have between 1 & 4 members or Trustee/s.

Trustee/s are required to set an investment objective and strategy for the fund. These should be in writing and kept with the fund’s records and reviewed on a regular basis.

The aim is to ensure all investment decisions are carefully considered and are appropriate for the fund’s circumstances.

The Trustee/s must also ensure that the fund remains compliant in accordance to the Trust Deed, and the laws and rules that apply to SMSFs

CommSec has a range of Investment solutions available, to assist trustee/s with the fund’s investment management.

Our share trading service is becoming increasingly popular with SMSF investors, as it allows the flexibility to invest in both Australian and International share markets as well as IPOs

There are a number of benefits that exist for SMSF to engage in share ownership as part of their asset selection. Some of these include;

 – The flexibility to make decisions with respect to market movement

– The flexibility to select from a range of equity investments

– Diversification through a variety of industry exposures

– Liquidity to be able to exit a particular stock at a time that is right for the fund

A SMSF is able to buy and sell shares in the name of the fund for the purposes of portfolio restructure. However, there is a fine line between this practice and trading multiple stocks on an intra-day or frequent basis in a bid to maximise profits from trading’.

In addition to restrictions for SMSFs in share trading are limitations on geared investments including Margin Lending. SMSFs are largely prohibited from borrowing money for the purposes of investing. There are some limited exceptions including limited recourse loans which have a strict set of requirements, and certain short term loans to pay benefits or settle certain security transactions.

It is worth noting that an SMSF isn’t prevented from investing in assets that incorporate borrowings, such as geared managed investment funds or certain types of instalment warrants.

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Important Information

The views expressed in this article are those of Brian Phelps, a representative of Commonwealth Securities Limited (CommSec) ABN 60 067 254 399 AFSL 238814.  Commonwealth Securities Limited (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 and a Participant of the ASX Group and the Sydney Futures Exchange. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice.

CommSec Margin Loan is a facility provided by Commonwealth Bank of Australia and is administered by CommSec. Please be aware that a CommSec Margin Loan exposes you to unfavourable movements in the value of shares and units in managed funds, and possibly to margin calls. Please be aware that you are personally liable for any shortfall that occurs should your entire portfolio have to be sold to answer a margin call where there have been falls in the market value of your investments. Only investors who fully understand the risks associated with gearing into investments should apply. All applications for a Margin Loan are subject to the Commonwealth Bank’s credit approval process. Fees and charges apply.