It is simply a managed fund that borrows money inside the fund structure to invest more than the cash investors contribute.
How It Actually Works
In a traditional managed fund, if you invest $100, the fund invests $100.
In an internally geared managed fund, if you invest $100, the fund may invest $150 or $200 by borrowing internally.
The borrowing is handled within the fund. You are not personally applying for a loan.
The gearing sits inside the structure.
This amplifies both gains and losses.
Why It Can Be Powerful Inside Super
Superannuation is already a tax-efficient environment.
When you combine long-term time horizons, concessional tax treatment and disciplined compounding, the environment becomes ideal for growth-oriented strategies.
An internally geared managed fund can amplify exposure to growth assets like Australian or global shares.
Over long periods, this can materially improve returns.
The Volatility Trade-Off
Gearing magnifies outcomes.
When markets rise, gains are amplified.
When markets fall, losses are amplified.
This is not a strategy for the faint-hearted.
It is also not something that should dominate an entire portfolio.
Internally geared managed funds are typically used as a satellite position within a diversified portfolio.
They are tools.
Not magic bullets.
Who Should Consider Them?
IGMFs may be appropriate for:
- Younger investors
- Long investment horizons
- Strong risk tolerance
- Those targeting accelerated wealth accumulation
- Individuals aiming for early retirement
They are rarely appropriate for:
- Retirees drawing income
- Highly conservative investors
- Those uncomfortable with volatility
The Real Question
The question is not “Are IGMFs risky?”
All growth assets carry risk.
The real question is:
Does your portfolio need to grow faster than average to achieve your timeline?
If the answer is yes, then understanding internally geared managed funds becomes important.
They are not mainstream.
They are not widely discussed.
But for the right investor, used correctly, they can materially change the trajectory of a super balance.
Disclaimer: This information is general in nature and does not consider your personal objectives, financial situation or needs. You should consider seeking professional advice before making any financial decisions. Past performance is not a reliable indicator of future performance.
