Step-By-Step Guide to SMSF: Investment Strategy, Borrowing Rules, Fees & Setup

June 30, 2016 — by Richard Dawson

You’re probably familiar with the option of investing your savings in a Self-Managed Super Fund and you simply know it would be a shame not to take advantage of the opportunity. A very short introduction to those who still haven’t heard of it: it’s the type of fund where the members are also the trustees of it and run the fund for their own benefit. Also, the trustees themselves are fully responsible for complying the work of the fund with the ATO (Australian Taxation Office) regulations and other applying laws.

Investment Strategy

You can choose to set up and run your own SMSF, but have in mind that you need a considerable amount of financial knowledge, as running an investment fund of the kind is everything but easy. Think a number of laws to be followed and complied with, responsibility for the money being trusted to the fund and taking care of things like the audit of the financial reports. To sum it up in a simpler way, working with an SMSF comes down to knowing a few basic things: how to set it up, how to create and tailor the investment strategy, the laws that apply to the work of the fund, the audit and the taxation.

The goals and objectives

The purpose of the SMSF is to invest an amount of money in a fund that will be increased till the point of retirement, so when the golden ages come, you have an income that’s large enough to provide you a lushious life. You don’t have to be the one running the fund; you can choose an existing one and invest your money there. However, you do need to actively participate in its running with contributions.

Setting up the fund

There are a few things that need to be arranged in order for the fund to start functioning properly. After you’ve set up the trust deed and the investment strategy and obtained the permission for it, you need to arrange the contributions and how they will be received. That means you need a bank account in the name of the fund. All the salary sacrifice superannuation payments will be made on this account. Once the bank accounts and the arrangements about the salary contributions are made, the fund can start working and executing the trust deed.

All set. Now what?

Now it all comes down to smart managing and executing the investment strategy. Besides filling the fund and keeping track of the investments made, you can start borrowing money as part of the fund’s investment strategy. For this you need a Limited Recourse Borrowing Arrangement or LRBA as well as to follow a few simple rules:

  • you can’t buy a single asset with the borrowed money;
  • you can’t use the agreement to improve a purchased asset;
  • SMSF trustees can buy the asset and similar other rules that protect the borrowed money and the asset bought with them.

Once everything is being set and done, you can start paying your contributions. Or, if you’re working, you can arrange for your employer to make the payments and look forward to your golden era.