Before investing in any managed investment scheme, always consider the following:
is there a valid product ruling for the managed investment scheme you are considering investing in. Click on:Product Rulings listed by year and product ruling number or product rulings listed by product type.
does the investment scheme have a current product disclosure statement or a current prospectus lodged with ASIC?
is the investment scheme promoter licensed by ASIC? Click here http://www.fido.asic.gov.au to access a list of licensed promoters.
ask the investment scheme manager if they receive commissions for the number of investors they sign up. Commission structures should be outlined in the product disclosure statement or prospectus. You should be wary of investment schemes where high levels of commission are paid to managers (in excess of 10-20% of your total outlay).
investigate the financial arrangements and structure of the investment scheme. You should be wary of finance arrangements that involve ‘round robin’ financing and limited or non-recourse loans.
be wary of aggressive marketing and sales techniques used to ‘sell’ investment schemes. Such techniques may include the use of opinions from lawyers. Remember that courts of law may have differing views.
be aware that if the dominant purpose for entering an investment scheme is to avoid tax, then, under the law, the Tax Office can disallow the deductions at a later date.
You should be cautious of investment schemes that promise substantial tax benefits, or involve finance offers using promissory notes, buy back schemes, or other arrangements where very little of your own money is outlaid or at risk.
If an investment that relies on so called ‘tax breaks’ seems too good to be true, it probably is. You could find your tax deduction disallowed, and face a tax bill that includes penalty tax and interest. You could also be left with an uncommercial scheme and have to pay promoter’s fees.
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