The benefit with Self Managed Super Funds (SMSFs) is that you get to manage your investments and take such decisions that you think can maximize your returns. Superannuation laws require you to strategize investments for your SMSF and monitor it frequently.
In this article,
Key Points For SMSF Investment Strategy
You need to have a written copy of investment strategy and you must keep in mind the following factors while drafting your strategy:
Risks and Returns
Analyze the risks and returns involved in making, maintaining, and settling the investments and the cash flow requirements for the same.
Composition of Investments
Decide the extent to which you want diversification of investment products in your fund and what can be the results if you don’t diversify the investment fund. The percentage or dollar attribute that you follow for investment allocation shall justify your investment approach in terms of retirement goals. In case you don’t follow the percentage or dollar attribute then you must list down material assets in the investment strategy.
Asset Liquidity
Higher liquidity ensures faster availability of funds. Therefore, you must understand whether assets in your fund are liquid or not and if yes, to what extent.
Payments to Retirees
Estimate whether the fund will be able to pay to the retirees the amount of retirement benefits.
Insurance Cover
Analyze the need for insurance cover for the members of the fund.
When to Review SMSF Investment Strategy?
As we have mentioned earlier, you need to frequently review your SMSF investment strategy. Following significant events that must be considered as a sufficient reason to review the strategy:
- Market correction
- Entry into and exit from the fund
- Member commences receiving pension amounts
As a good practice, you should review the strategy at least once a year and document the results and comments after review.
Results of Non-Compliance With Investment Strategy
Further, while conducting the annual audit, the auditor will review whether your fund complies with the investment strategy and any negative remarks shall be notified by the auditor to the ATO through auditor contravention report (ACR).
However, the auditor will provide you an opportunity to rectify the breaches found by him. You can do so by signing an addendum to the strategy or a trustee minute and present the same to the auditor. In case failure is there regarding the investment of funds in line with investment strategy, make sure that you revise the strategy so that it reflects your investments and how retirement objectives will be met with the new strategy.
Your auditor can report to ATO through ACR in two cases i.e. when there are repeated breaches from year to year or when the previous breach remains unrectified in the current year audit. Additionally, if your fund ages less than 15 months or the breach amount (single) exceeds $2,000, reporting will be done.
Penalty by ATO
If the breach remains unrectified after the same is intimated by the ATO, the ATO can levy a penalty of $4,200 on each individual trustee or corporate trustees. Further, directors and trustees are jointly and individually liable to bear the amount.