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More About Superannuations

April 05, 2012 | Comments: 0 | Views: 140

Superannuation is a form of self managed super fund and is a very smart way to invest money and to provide for older age. The idea behind a superannuation is to invest a pot of money in order to gain interest, normally with the intention of saving for retirement. Anyone can submit to a superannuation be they employers, employees or self employed, and here they will submit the money in a series of payments over an agreed timescale in much the same way that you might submit money to a pension scheme in monthly or annual payments.

The superannuation then works by holding that money in trust for the members of the group. It will then invest that money in order to increase the assets and thereby be able to provide for the members should they decide to withdraw their share - normally in the case of retirement or injury or sometimes financial struggles.

Superannuations are classed as a form of self managed super funds. This means that they are taxed at a lower rate than other forms of investment, but in order to be classed as self managed super funds they must meet a number of criteria. For instance a self managed super fund will have less than five members, each trustee of the fund will be a fund member (and vice versa), the members of the fund must not work together unless related, the trustees must not be remunerated for being trustees.

As the phrase 'self managed' might suggest, in a self managed super fund it is the job of the trustees to manage their own investments and to decide where they want their money to be spent. This is very different from how a bank works when you invest money there and it has a lot of useful advantages.

For instance, in the case of a bank, the bank is at the end of the day a business that is trying to make money. This then means that they will invest your money, and that they will then give you a percentage of the interest they make. However that interest you receive is always going to be less than the amount of money they made from investing it, as that's how they pay their salaries. On the other hand, if you are part of a self managed super fund, then your group will keep all the interest bar expenses meaning that it will grow quicker assuming you make the right decisions and earn you more profit.

Because you get to choose the investments this also means that you can direct your self managed super funds as you see fit and this way ensure that you support causes you agree with and that you think will be successful.

Of course you can do this with your own money without any need for the superannuation. However the downside of this is that with less capital to begin with you are able to make smaller investments which will understandably have lower returns. By using superannuation you are pooling together to maximize your resources.

This is just a very basic introduction to self managed super funds. For more on self managed super funds follow the links.

Source: EzineArticles
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