The Motley Fool

Is the ASX Ltd’s new mFunds product right for you?

ASX Ltd (ASX: ASX) is a stock which deserves a place on investors’ watchlists – it’s a quality business with appealing characteristics as the owner and operator of Australia’s equity and futures exchange.

The group’s strong market position has led it to report solid earnings per share (EPS) growth over the past decade. EPS has grown from 59.3 cents per share (cps) in FY 2003 to 195.5 cps in FY 2013.

Equally importantly, its share price has fallen 5.1% in the last month, resulting in the stock trading on a forecast FY 2015 price-to-earnings (PE) ratio of 17.1x and a fully franked yield of 5.2%.

Whilst the ASX Ltd looks like it could be an appealing investment proposition at present, the problem faced by many investors is that deciding to invest in the ASX Ltd means analysing and valuing the stock – a process many are unwilling or unable to undertake.

Seeking professional help

There are ways to invest in equities that don’t require you to personally be a top notch stock picker. Professional investment services from newsletters and investment advisors through to share brokers and fund managers are all options to consider.

A new option

One of the most recent examples of the ASX’s innovation has been the launch of its mFunds platform…

Technically speaking:

An mFund product is an unlisted managed fund admitted for settlement under the ASX and available to investors through the mFunds settlement service. Perhaps the single most important point about mFunds is that it is not a transaction between two investors, as is the case when you buy and sell shares or exchange traded funds, rather it is a transaction between the investor and the fund manager.

Interestingly, just as this service is being launched, some leading fund managers are choosing to bypass this new offering and instead float listed investment company (LIC) structures. These include the recently listed Acorn Capital Investment Fund Ltd (ASX: ACQ) and QV Equities Ltd (ASX: QVE), which is managed by Investors Mutual. LICs by other prominent fund managers are also in the pipeline – Perpetual Limited’s Equity Investment Company Limited and Ellerston’s Global Investments Limited (ASX: EGI) should both launch before the end of the year.

Geoff Wilson, who heads up three LICs, including WAM Capital Limited (ASX: WAM), has been a major proponent of the benefits of the LIC structure. Perhaps the most important of these benefits is that a LIC has a “closed-end” structure. This can protect investors from a squeeze caused by redemptions which can see forced sales at precisely the wrong time.

On the flip side, mFunds is providing a convenient way for investors to gain access to a much wider array of fund managers than are available through LICs. Currently mFunds provides access to 63 funds across 20 fund managers – these numbers are likely to expand significantly over the coming years.

How Ordinary People Can Get Rich…

There are pros and cons to LICs, mFunds and direct shares - it ultimately depends on your personal circumstances as to which is best for you. Most importantly, they can all help you get rich! If you're looking to build wealth by investing in ASX shares don't miss The Motley Fool's brand-new FREE guide, "Your 10 Step Guide to Making $1 Million in the Market". This new, free report contains every detail you need to know now to build your personal fortune! Simply click here to secure your FREE copy.

Motley Fool contributor Tim McArthur owns shares in Perpetual Ltd.

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