All self managed super fund (SMSF) trustees must prepare an investment objective for their fund and choose an appropriate investment strategy. The primary purpose of an SMSF is to save for retirement so it is important to keep this in mind when choosing investments for your fund. The Australian Taxation Office has strict guidelines on what SMSF superannuation funds can and can't invest in.

Your investment objectives, timeframe and risk profile are all important considerations when setting your investment strategy.

Indexing offers an attractive range of benefits for SMSFs. Index funds aim to deliver broad diversification at low cost and let markets do their work over the long term. Because they diversify across a range of asset sectors, industries and securities, index funds can reduce exposure to market risk and improve your performance potential.

Add to this the potential for after-tax benefits and index funds become even more compelling for SMSFs. Why?

Because SMSFs pay a maximum tax rate of 15 per cent tax on income when in the accumulation phase and are tax exempt when in the pension phase, using a tax-effective investment strategy like indexing can translate into better returns. Take capital gains tax for example. Once capital gains are realised they are distributed as income and subject to tax. Vanguard uses a buy and hold strategy to take advantage of capital gains discounts and the deferral of capital gains liabilities, which can minimise your fund's tax liability and enhance your performance potential.

Funds with Australian shares exposure can take advantage of the dividend imputation system. Given the tax concessions applied to SMSFs, excess franking credits can offset other fund tax such as contributions and investment tax. The higher the level of franking credits the greater the benefit to a SMSF. Vanguard's approach can maximise the level of franking credits distributed, rather than diluting it like higher turnover, actively managed funds. Assets held for the provision of a pension are tax exempt. As such, any imputation credits received may be refunded by the Tax Office increasing the returns achieved by the superannuation fund and the assets available to pay the pension.

What do Vanguard's Investor Index Funds offer?

Self managed super funds can invest in Vanguard's retail investor index funds or wholesale index funds depending on the size of the fund.

Both options offer a choice of single sector and diversified investment options. You can build your own asset allocation and select your mix of sector investment options like Australian and international shares, property and fixed interest. Or, you can choose from one of our diversified options, which are available in four pre-determined investment profiles to suit the risk conscious to more aggressive investment strategies. This means you simply choose the investment profile that best suits your fund and our award-winning team will take care of the rest. You can easily switch investment options when your fund's needs change without having to pay any switching costs, other than the usual buy/sell spreads that apply.

With Vanguard's low fees of around half the industry average, you can be assured your SMSF is off to a head start. Scaled management fees apply to larger balances so the more you invest the lower the fees. And, there are no upfront fees (other than buy/sell spreads).

SMSF investment options