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With the recent turmoil in investment markets many people are asking whether they should start or continue with a self-managed superannuation fund (SMSF or DIY fund).

If you are considering a SMSF, here are some important questions you should ask yourself.

Why are you considering a SMSF?

SMSF’s are tightly regulated by the Australian Tax Office (ATO). If you were hoping to use a SMSF for any purpose other than to genuinely plan for income in retirement you could find yourself in trouble with the ATO.

This means you can’t use your SMSF for financing a business, buying a holiday home or paying off your mortgage.

Do you have the time, money and expertise?

People who understand investment markets and put time into managing their investments can do well with a SMSF. So can those who are willing to pay for qualified independent advice.

But if you have neither the time, the money, or the interest to delve into investment matters then a SMSF might not be the right option for you.

You should also be aware that SMSFs involve strict and complex compliance and tax obligations that can be time consuming and costly to manage.

Do the costs stack up?

It is generally accepted that SMSFs can be expensive to run, but sometimes the costs can be worthwhile.

After paying the initial establishment expenses of a SMSF, there are further base and optional costs involved in maintaining your fund.

When you take into account costs such as audit, advice and administration, SMSFs generally don’t become cost effective until the level of assets start to approach $200,000.

On the other hand, whether the costs stack up or not, can be a matter of personal preference. You might think it’s worthwhile paying more in costs to gain greater control over where your money is invested. That’s a personal judgement, though it may still be wise to know where you stand on the basis of a pure cost comparison.

How DIY will your fund be?

Unless you’re a registered auditor with investment experience and time to plan your investments, a SMSF will never be a true DIY experience.

Before taking on a SMSF you should identify all of the roles involved and decide which ones you want to manage yourself. This will also give you a good idea of the operating costs and your time commitment.

What about insurance?

The super fund you’re with now might offer insurance on terms that may not be available to a SMSF.

If insurance is important to you, you should find out whether you can take your current insurance with you to your SMSF. 

How much control will you have?

People who make SMSFs work for them are often those who like being hands on and understand how to use this control to achieve their goals.

Ask yourself if you have a real wish to gain close control over your investments as well as the knowledge and experience to make this level of involvement work for you.

It is true that a clever trustee can generate tax advantages, particularly during the move from the accumulation to pension phase, however there are pitfalls. So if you do decide to start your own SMSF, make sure you go into it with your eyes open and you have a sound plan.

I would like a SMSF but what if I don’t have enough assets.

If the idea of a SMSF appeals to you but you don’t have enough super savings to make it cost effective, you can use an existing super fund as an incubator until you have built up enough money to start your own.

Then when you have accumulated enough assets you can transfer your savings to a SMSF.

Prime Super is a not for profit industry superannuation fund. This article contains general information only and does not take account of your personal circumstances. You should obtain personal advice where appropriate. Prime Super is issued by Farm Plan Pty Limited (ABN 81 067 241 016, AFSL 219723). A Product Disclosure Statement is available from the issuer by phoning 1800 675 839.